I have heard stories of large companies paying no taxes, but how do they do that when we have the alternative minimum tax? Isn’t that supposed to be loophole proof?
I didn’t know the AMT applied to companies. My only exposure to the AMT is for individual taxpayer taxes not corporate taxes.
Anyway, AMT is a poorly written tax that kicks in at some income level and then kicks out at some higher income level. In other words, if you make a ton of money, the AMT doesn’t affect you. There is some band of income where AMT applies.
Also, the AMT wasn’t written with inflation in mind, so as wages increase with inflation, people below the band move up into the band and get smacked with the AMT. In other words, the AMT was originally written to hit upper income earners, but over time now hits middle class earners more and more.
At least, thats how I’ve had it explained to me.
The easiest way not to have to pay any income tax is not to have any taxable income. Perhaps the companies in question are ones that did not have a profitable year?
Corporations do pay AMT, or at least some types do. The cutoffs are different than individuals, who also have different cutoffs depending on filing status. When AMT is required, you calculate the regular tax and AMT and pay whichever is higher, so in some cases you may not pay AMT. It is now not fulfilling its intended purpose.
Yes, companies that pay very low taxes are often using foreign accounting (Apple’s investment in Ireland) or reporting losses, which may be a result of creative accounting (the reason why Uwe Boll kept making movies, though that was German tax code).
First statement is true in my opinion. Second statement is false as a matter of fact. There is no income level above which the AMT does not apply. The AMT has mostly to do with deductions like state taxes and medical expenses or exemptions like municipal bond interest.
Also something I found out due to that info about Trump was you can use a loss in a prior year to avoid taxes. For example if you lose $100 mil and that would make your income negative $50 mil then you can use that $50 mil loss next year . (correct me if I am wrong)
I think that’s only for certain specific kinds of losses. Specifically, the kinds of losses suffered by the person who wrote the proposal to put that particular loophole into the law. Which person was, of course, named Donald Trump.
The Alternative Minimum Tax for corporations uses a lot of the same rules as the AMT for individuals, but they are not the same thing. Anyone who has had experience being hit by AMT personally and was explained the reason would most likely be misapplying the knowledge they received in that instance. AMT has hit individuals much harder recently because for a long time it was not indexed to inflation whereas regular tax brackets have been for much longer (and when they did index AMT to inflation, they didn’t go back and correct the values to what they would have been if it always had been), and right now, while I haven’t done the numbers to prove it, I’m fairly sure there’s a band of income where AMT will always apply - where it’s simply greater than the normal tax on income for certain taxable income amounts. That band is somewhere around 200-300k a year. Once you get into the 39.6% bracket far enough, then AMT will no longer automatically apply because the regular tax is larger. That is likely why someone might say it applies to high incomes up to a point and then stops applying.
How exactly AMT works is really arcane, and I couldn’t tell you fully about any particular feature while at home away from my research sources I have at work. I could look at old textbooks, but things may easily have changed. In general there are timing differences, where depreciation is required to be taken over a longer life, and preferences for certain items that are non-taxable or deductible in regular tax but taxable or nondeductible for AMT. The one of these that most people would be most likely to see is that municipal bond interest is taxable for AMT if the bond funds were used for certain private purposes, whereas municipal bond interest is usually not taxable as a way of providing lower cost funding to other governmental units. The entire tax system works in parallel with the regular one, so that one’s AMT Net Operating Loss or Foreign Tax Credit and associated carryovers may be rather different since the income on which those things are based might be rather different. The same is true for capital gains if there was depreciable property sold.
How businesses generally “get away” with not paying tax even under AMT is simply not being profitable. They still might be healthy, but they may have had a poor year or took some one-time charges that are deductible regardless but are not expected to recur. Without particular cites for specific companies showing how they reported a profit in their annual report and didn’t pay any tax, I can’t get any more specific. If their annual report does say such a thing, it probably would have an explanation as to how it was accomplished. While you the general reader may not understand it, I probably could. Maybe. If I had my research sources available.
The standard dodge is by keeping foreign income out of the US.
Here’s my understanding of how Google does it: Google’s operations in europe (and all the revenue from them) is owned by a holding company registered in Ireland*. That company pays google some minor royalties and fees for the IP, infrastructure and other services needed to support the standard google experience, but keeps the vast majority of the profits from Google’s european operations. Because that company is owned/controlled by Google the news media (and shareholder reports) list that companies income as revenue for google. Since that holding company isn’t based in the US, it’s revenue is taxed differently or not at all (I’m not sure which, rules seem to differ for people and corps).
- actually, they’re currently looking for a new home, and, anyway, the situation is a bit more complex than I described.
And if I might just rant a little… the whole idea of AMT is just idiotic. If there are flaws and loopholes in the tax code, just bite the bullet and fix them. Don’t make everyone calculate their entire tax return twice, using two different sets of rules.
Chronos, that statement is well, very wrong. Tax-loss carryforward and is a very standard part and legitimate part of tax code, not some sneaky dodge. Note that to have it at all, you need to have faced losses at some point in time. It was well-established principle long before Trump used it, and is thoroughly necessary for some businesses to function otherwise they’d be taxed absurd amounts on nonexistent “profits” that only appear on paper due to to the fact that we calculate tax bills annually.
This is the weird part of it.
Try going back to when same sex marriage was legal in some states, but not federally. Had to do something like calculate the federal both MFJ (which you didn’t file) and single/HoH/etc. Then calculate a state return based on the MFJ.
Yeah, today I learned that Donald Trump has been writing the tax code for decades.
So why did Mr Trump bother to run for president when he’s been writing tax law for all these years?
In an interesting side note, the Republicans appear to have made a major screw-up in writing the Senate tax bill. Originally, like the House bill, it was going to eliminate the AMT for corporations. However, because of worries over the bill’s likelihood of increasing the debt, they stuck the AMT back into the bill, on the theory that they were only adding back in about $40B in revenue. As it turns out, because the AMT’s rate (20%) is essentially identical to the new corporate rate, almost all companies would pay the AMT, instead of getting the advantage of various added deductions and exemptions that were supposed to reduce the effective rate to below 20%. This, it turns out, will add about $250B in tax revenue.
One group of companies which will be hammered by this turns out to be coal mining companies…
Do you have a link for this? Not that I don’t believe you, but because I want to share it.
That’s some funny stuff right there.
For someone who was making a lot of money selling his name, there was a lot of benefit and free publicity in being a prominent candidate running for President.
I don’t think he actually planned to win…
That is what I read as well, which makes this thread rather confusing, since “20%” is a percentage and everyone here is talking about adjusting for inflation, which only makes sense if you’re talking about an actual, hardcoded dollar value?