In regard to federal taxes, the definition of taxable income in the legal code has a significant impact on how much taxes corporations pay. It’s not that these companies are just “choosing” not to pay taxes; they are taking advantage of statutes in the legal code and capitalizing on loopholes.
First, the tax code allows companies to deduct past losses from their profits. This prevents corporations, companies and individuals with long-term net losses from being taxed as much as they would be taxed otherwise. In other words, if a company had major losses over the last two years but made a small profit this year, it would still have an overall loss over three years.
Which expenses that can qualify as an immediate expense versus which expenses must be depreciated over a period of time is governed by a dense part of the U.S. Internal Revenue Code known as. Generally, immediate expense reduction can encourage more capital investment in the economy by reducing the taxes companies pay that year, the same year they make the capital investment.
So, just because a business pays “zero income taxes” doesn’t mean it’s not paying any taxes at all, nor does it necessarily mean it is “getting away with something” considering it may just be making up losses from past years or have other deductions that might be considered reasonable. The phrase “tax loopholes” may imply that a company is getting away with something, but that is not necessarily true.
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