Approximately 34% of large, profitable U.S. corporations paid $0 in federal income taxes in 2018, the first year of the Tax Cuts and Jobs Act (TCJA), according to a Government Accountability Office (GAO) study. From 2014 to 2018, nearly half of all large corporations and a quarter of profitable ones paid no federal tax.
Corporate income taxes accounted for 6.5 percent of total U.S. tax revenue in 2022.
Large U.S. corporations often pay minimal or no income taxes by using legal tax avoidance strategies. Corporations use offshoring profits, accelerated depreciation, and employee stock options to reduce taxable income.
At least 55 of the largest corporations in America paid no federal corporate income taxes in their most recent fiscal year despite enjoying substantial pretax profits in the United States.
Taking Advantage of Capital Gains, Not Salary
One of the biggest reasons Bezos pays little in personal income tax is that he doesn't rely on a traditional salary. Instead, he holds most of his wealth in Amazon stock. Here's why this matters: Capital gains taxes are much lower than income taxes in most cases.
The top 10 percent of income earners pay more than 60 percent of all federal taxes and 72 percent of income taxes, shares that have been increasing over time.
Provision details: The 2017 TCJA enacted large tax cuts for businesses, especially for large international corporations. The headline changes were lowering the corporate tax rate from a maximum of 35 percent to 21 percent and moving the United States from a worldwide corporate tax system to a more territorial tax base.
In some years, billionaires such as Jeff Bezos, Elon Musk and George Soros paid no federal income taxes at all. Billionaires avoid these taxes by taking out special ultra-low-interest loans available only to them and using their assets as collateral.
Federal tax rates
The top corporate tax rate in the U.S. fell from a high of 53% in 1942 to a maximum of 38% in 1993, which remained in effect until 2018, although corporations in the top bracket were taxed at a rate of 35% between 1993 and 2017.
But how people define “upper class” differs. Some say you'd need to be making twice the median income, or around $167,460. Even more elite are those who find themselves in the top 5 percent of earners. In the U.S., you'd need to be making about $336,000 to find yourself in the top 5 percent, according to Census data.
The IRS 7-year rule primarily applies to keeping records for claiming a deduction for bad debts or losses from worthless securities, allowing a longer period to file for a credit or refund, but it's not a universal audit limit; it's often a recommended safe buffer for general record-keeping, with the standard IRS audit period usually being 3 years, extending to 6 years for substantial income omission (over 25%) or foreign income issues, and indefinitely for fraud.
We thought Michigan residents might be interesting in learning how Facebook founder Mark Zuckerberg and several company insiders are using a legal tactic called a “grantor-retained annuity trust” to avoid paying hundreds of millions of dollars in estate and gift taxes on their Facebook shares.
Yes, Jeff Bezos famously kept his Amazon base salary at around $80,000 per year for decades, choosing to take most of his compensation through stock options, which grew immensely as the company succeeded, making him one of the world's wealthiest individuals without a high executive paycheck. He felt he had enough incentive as a major owner and preferred building wealth by increasing the value of his existing equity rather than taking more salary or bonuses.