Thread by @finshots

Amazon paid $0 in federal taxes even after making profits of $3billion and $10billion in 2017 and 2018 resp.

How did they do it?

For the uninitiated, companies in the US pay two types of taxes on their profits. First, a federal tax of 21%, which they pay to the Central Govt, and second a state tax that's paid to the local state govt.

Also, the US govt wanted companies to spend more on R&D so that the US can continue their tech dominance. So, they offered incentives and tax breaks. The Tax Cuts and Jobs Act, 2017 allowed companies to account for new capital/R&D investments as expenses incurred in the same year

Say you invest $1B for a new manufacturing facility. Although $1B went out of your pocket, you are allowed to treat only a part of this capital as an 'expenditure' for this year.

Why?

Since you can use this facility for a few more years, the Govt wants you to spread this $1B expense over the next few years (depending on the life of the asset). Accountants call this "depreciation expense." R&D expenses also receive a similar treatment called "amortization"

However, with the 2017 act, you can show the entire R&D expense in the same year reducing the taxable income. So Amazon invested most of their profits into new assets and R&D, and their taxable income came to ~$0. In 2017, Amazon spent $23B on R&D 40% more than its 2016 spends.