Understanding Amazon's Tax Situation

Recently, it was reported that the giant corporation, Amazon, was likely to pay no or very little taxes for tax year 2018. When people heard this news, they were upset and confused. After all, Amazon brings in huge U.S. profits. It seems like the company would have to pay taxes.

However, the company is smart and knows how to play its cards right, at least as far as its bottom line is concerned. By taking careful advantage of various tax rules, deductions, and more, they have legally enabled themselves to pay well below the standard corporate tax rate for several years now.

While some people think Amazon is absolutely brilliant for its clever manipulation of the rules, others feel the company’s maneuvers are unfair or unethical. However, the company has operated within the bounds of tax law, which leads some to look at Amazon’s tax status as merely a symptom of a bigger problem- a failed tax system full of loopholes. Of course, there are still others who think that Amazon’s situation is proof of a working tax system that helps companies to invest in their own interests and grow the economy in the process.

Whatever your take on the issue and what it says about our country may be, at least consider this: we can all learn a lot from Amazon as individual and/or business taxpayers. If Amazon teaches us anything, it’s that we can work the tax law to our advantage in powerful ways, all without getting ourselves in trouble or doing anything illegal.

To start working the tax laws to your advantage, however, you first have to know what they are. That’s where doing your own research and hiring the right professional tax help comes into play. Do those things, and you, like Amazon, could find yourself paying a lot less in taxes than you ever imagined.

Understanding How Capital Gains Tax Affects Real Estate

Many items that you purchase start decreasing in value pretty much the moment you purchase them. Fortunately, however, that’s not the case with all purchases; your home, for example, can end up being a purchase that actually increases in value. This can happen if you complete renovations on your home to raise its value or if you purchase a home in an area that later becomes popular and high in demand. When people experience a rise in their home’s value, they will often decide to sell their homes and make a profit.  

If you’re considering taking this route, you should know that you may have to pay taxes on any profit you make from the sale of your home. This tax is called the “capital gains tax,” but, fortunately, there are ways around it.

The Taxpayer Relief Act of 1997, for example, is one “loophole” through which many people are able to hold onto the profits from selling their home, or at least most of the profits. There are other methods that can help you to hold onto profits as well, so before you sell your home, talk with an accountant or financial adviser to see what options you have. 

House Flipper or Homeowner?

One important thing to understand is that not all home sales are treated the same. If you, for example, are someone who purposefully buys homes, fixes them up, and then sells them at a premium- known as a “house flipper,” your situation is treated differently by the IRS than that of a standard homeowner.

A homeowner, for IRS purposes, is defined as someone who has used the home in question as his primary residence for at least two years out of five years of ownership. If this rule does not apply to you, you will more than likely have to pay the capital gains tax. If you’re a true homeowner, though, there are ways around paying the tax.

Furthermore, there is an exception to the rule if you’re a true “house flipper,” i.e. someone who regularly buys, fixes up, and sells houses. When you do this often enough, you can treat your homes as inventory and have your profits taxed as income.

The Impact of Profit

Something else you should know is that you are not taxed based on how much you sell your home for. Instead, you are taxed based on the amount of actual profit you make. There is going to be an “allowed exemption amount” on the sale of your home, and as long as you don’t go above that amount, you typically won’t have to pay taxes, providing, of course, that you meet the IRS’ definition of a true homeowner.

Partial exemptions are also available in many cases, even if you do go above the allowed exemption amount. The important thing is to work closely with a tax professional to ensure that, no matter what your situation, you retain as much profit as possible from the sale of your home.

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