How billionaires like Jeff Bezos and Elon Musk avoid paying federal income tax while increasing their net worth by billions

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Amazon cofounder and CEO Jeff Bezos.

  • Amazon CEO Jeff Bezos didn’t pay any income taxes for at least two years between 2006 and 2018, ProPublica reported.
  • Tesla CEO Elon Musk also skipped paying federal income taxes in 2018, according to the report.
  • Billionaires are able to circumvent federal income taxes through legal financial manipulation.
  • Visit the Business section of Insider for more stories.

In 2007, and again in 2011, billionaire Amazon CEO Jeff Bezos reportedly paid nothing in federal income taxes. In 2018, billionaire Tesla CEO Elon Musk reportedly did the same thing.

That’s according to confidential tax documents filed with the Internal Revenue Service obtained by ProPublica, which were revealed in a bombshell new report on some of the world’s wealthiest people.

Bezos is currently listed by Forbes as the richest person in the world, with a net worth of $188.8 billion. Musk isn’t far behind at number two on the Forbes list, with a net worth of $153.3 billion.

How do men with such dramatically high net worths avoid paying federal income tax?

Billionaires like Jeff Bezos and Elon Musk derive little wealth from their annual income. Instead, much of their net worth is tied to stock holdings.

Amazon Jeff Bezos
Jeff Bezos cofounded Amazon in the early ’90s, and still owns a 10% stake in the company.

Bezos, for example, owns a 10.3% stake in Amazon that’s valued at about $170 billion.

The majority of Bezos’ net worth – $170 billion – is tied to Amazon stock, which fluctuates regularly and has even left the billionaire jockeying for the world’s wealthiest title with Tesla CEO Elon Musk at times. At least $19 billion of Bezos’ wealth is not tied to his stake in Amazon.

Bezos can skip paying taxes on his accumulated wealth from the Amazon stock because stock gains aren’t taxed until they are realized by selling off the stock: Since those stocks represent value, but cannot be used as tender, they aren’t counted as “income” – even if they appreciate in value tremendously, like those of Amazon and Tesla.

As a result, though Bezos’ net worth increased by a reported $127 billion between 2006 and 2018, he only reported an income of $6.5 billion for those 12 years, according to ProPublica, resulting in a tax bill of around $1.4 billion.

That puts his federal income tax rate at about 21%, but his reported income doesn’t account for the massive increase in his net worth tied to stock ownership.

If you account for the $127 billion increase to his net worth that came from stocks appreciating in value over time, that $1.4 billion in federal income taxes accounts for just over 1%.

Moreover, Bezos and other stock-holding billionaires are able to turn those stocks into usable cash without having to sell: By borrowing money against their stock holdings, they’re able to lock in a lower loan interest rate than what they would pay through capital gains taxes that are applied after a stock is sold.

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New Jersey accountants are advising clients to move out of the state to escape its high taxes and living costs

New Jersey Gov. Phil Murphy in 2019.
New Jersey Gov. Phil Murphy in 2019.

  • NJ accountants are advising clients to leave the state over high living costs, a survey shows.
  • The NJ Society of Certified Public Accountants said businesses were also concerned about high taxes.
  • People have fled high-tax states like New York, New Jersey, and California during the pandemic.
  • See more stories on Insider’s business page.

Accountants in New Jersey are advising clients to leave the state because of its high living costs and corporate and property tax rates.

Seventy per cent of certified public accountants (CPAs) have advised individual clients to leave the state because of the high cost of living, according to a survey by the New Jersey Society of CPAs (NJCPA).

And 53% of respondents said they had advised New Jersey-based business clients to consider relocation because of the state’s higher cost of doing business.

Read more: I’m a millionaire. Biden’s plan to raise my taxes is a great idea.

New Jersey’s high property-tax and corporate-tax rates, lack of available skilled personnel, and regulatory requirements were top concerns for businesses, the CPAs said.

“The tax structure here is one of the highest in the country, if not the highest, and that certainly is a negative issue for individuals and for businesses,” NJCPA’s CEO, Ralph Thomas, told CNBC, who first reported on the survey.

New Jersey has the highest top corporate-tax rate at 10.5%, the highest average property-tax rate, and the worst business tax climate in the US, according to the Tax Foundation.

And New Jersey residents spend on average 12.2% of their income on state and local taxes, the Foundation said – the third-highest in the US.

Thomas told CNBC that many of the people and businesses leaving New Jersey were choosing states with lower taxes and living costs, including Delaware, Pennsylvania, Florida, North Carolina, South Carolina, Tennessee, and Texas.

“Tax hell” in New York and New Jersey has triggered mass migration to Florida, according to the Sunshine state’s CFO, who called the two Northeast states “financial train wrecks.”

But people fleeing high-tax states like New York, New Jersey, and California during the pandemic need to watch out for other surprise taxes, a tax advisor told Insider.

In the New Jersey survey, the CPAs were more optimistic about the national economic recovery from the pandemic than New Jersey’s.

Thirty-six per cent of CPAs said they thought the state’s economy would get worse for the rest of 2021 compared with the first five months, while 30% thought the national economy would get worse. And 35% said they thought New Jersey’s economic condition would improve, compared to 43% for the country.

The CPAs said state legislature should avoid excessive regulations and invest in infrastructure to retain businesses.

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The exodus of the ultra-rich to tax havens like Texas and Florida is accelerating – but people may still end up paying more tax than you’d expect

ron desantis florida vaccine 60 minutes
Republican Florida Gov. Ron DeSantis.

  • People have fled to low-tax states like Florida and Texas during the pandemic.
  • But they need to watch out for taxes they may still owe in the state they came from, a tax advisor said.
  • And states with no personal-income tax still have to generate revenues, so they tax other things.
  • See more stories on Insider’s business page.

People have been fleeing high-tax states like New York and California during the pandemic, leading to reports of an “exodus” to Florida and Texas – but people moving to avoid paying rates need to watch out for other surprise taxes, a tax advisor has said.

Though Florida and Texas have no personal-income tax, they still have to generate state revenue – so they hike up other types of tax, Alan Goldenberg, a tax principal at Anchin specializing in state and local tax, told Insider.

And even if you move to a low-tax state, you’ll still have to pay federal taxes, he added.

Read more: The 14 best neighborhoods in Austin, Texas, that young people, families, and one-percenters are moving to

Over the past decade, Florida’s population grew by 14.6% and Texas’ by 15.9%, according to US Census data. Both are around double the 7.4% rate of overall US population growth.

Meanwhile, California’s population grew by 6.1% and New York’s by just 4.2%.

And many of the super-wealthy are making the move to these low-tax states. Tax isn’t the sole reason why – but it is a “big part of the conversation,” Goldenberg said.

New York Gov. Andrew Cuomo plans to bump up personal-income tax for the wealthy to cover the state’s $15 billion deficit after its revenue fell during the pandemic. Combined with local taxes, New York City’s top earners would have to pay 14.7% income tax – which would be the highest rate in the US above California’s 13.3%.

People can make “significant tax savings” by relocating, Goldenberg said.

Florida’s CFO Jimmy Patronis told Fox Business that around 900 people a day are moving to the Sunshine state – and it’s mainly down to the “tax hell” in New York and New Jersey.

But Goldenberg warned that states with no personal-income tax still have to generate revenues, so they tax other things. These include sales, property, and tourism taxes.

Florida and Texas, for example, both have a 6% tax on stays in hotels – whereas California has none.

And Texas has high property taxes, too.

As well as considering these taxes, people have to watch out for whether they could still be charged in the state they moved from – known as their historic state.

“Just because you move out of the state doesn’t mean you may be totally done being taxed by that state,” Goldenberg said.

“There may still be some tax exposure,” he said, pointing out that people who own businesses in their historic state will still have to pay tax there.

Migration is leading to “significant revenue losses” for high-tax states, Goldenberg said. These states are increasingly chasing up people to check whether they have fully moved away, and are getting more aggressive in their approach, he said.

Because of this, people need to have a clear action plan and decide whether they want to keep, sell, or rent out the house in their historic state, Goldenberg said.

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ProPublica’s bombshell tax investigation reportedly has lawmakers eyeing policy changes. One senator who designed a key corporation tax cut says it wasn’t supposed to let ‘multibillionaires’ avoid tax.

EW   Photo by Tom Williams Pool:Getty Images
Democratic Senator Elizabeth Warren has proposed introducing a wealth tax.

A ProPublica investigation into the tax records of the richest people in the US, which showed that some avoided paying federal income tax even as their wealth grew, has renewed debate in Congress about tax reform, The New York Times reports.

The nonprofit news site ProPublica published a report on Tuesday showing how much the 25 richest Americans – including Jeff Bezos, Elon Musk, Warren Buffett, Bill Gates, and Mark Zuckerberg – paid in tax. The report highlighted how two key tax loopholes benefit billionaires.

Some billionaires had slashed their tax bill via deductions made possible by tax cuts passed during the Trump administration, the ProPublica report said.

Republican Sen. Patrick J. Toomey, of Pennsylvania, told The New York Times that a 2017 corporation tax cut that he helped author was not intended to let the super-rich avoid paying taxes.

“My intention as the author of the 2017 tax reform was not that multibillionaires ought to pay no taxes,” Toomey told the NYT. “I believe dividends and capital gains should be taxed at a lower rate, but certainly not zero.”

Read more: ProPublica’s billionaire tax data shows the importance of closing 2 key tax loopholes. Here’s how.

ProPublica reported that Musk’s wealth grew by $14 billion from 2014 to 2018, but that he only paid $455 million in taxes. Bezos did not pay any income taxes for at least two years between 2006 and 2018, the report said.

Buffett paid minimal tax by holding Berkshire Hathaway stock and not paying a dividend, according to ProPublica’s report. The investor defended himself in a statement to the news outlet, saying his shareholders didn’t want a dividend and that he gave nearly all of his money to good causes.

A Republican-led Congress cut the corporation tax rate from 35% to 21% in 2017 under former President Donald Trump, benefiting company shareholders. The 2017 Tax Cuts and Jobs Act also reduced the tax rate for the top income bracket from 39.6% to 37%.

Democratic Sen. Ron Wyden, chairman of the Senate finance committee, said he was considering new reforms following the report, but did not share details.

Democratic Sen. Elizabeth Warren has pushed for a wealth tax – a 2% tax on a person’s net worth between $50 million and $1 billion. In March, Warren introduced an Ultra-Millionaire Tax Act with Rep. Pramila Jayapal of Washington and Rep. Brendan Boyle of Pennsylvania.

“Raising multibillionaires’ income taxes isn’t enough when these guys don’t grow their fortunes from income,” Warren tweeted Wednesday. “We need a Wealth Tax in American to help fix a tax system that’s rigged for the rich and powerful.”

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When Jeff Bezos was worth $18 billion, he reportedly claimed a $4,000 tax credit intended for families earning less than $100,000

Jeff Bezos
Billionaire Amazon CEO and cofounder Jeff Bezos.

In 2011, billionaire Amazon CEO Jeff Bezos reportedly paid nothing in federal income taxes. That same year, when his net worth was valued at around $18 billion, he filed for and received a $4,000 tax credit for his children, ProPublica reports.

The outlet obtained confidential tax documents filed with the Internal Revenue Service, which were revealed in a bombshell new report on some of the world’s wealthiest people. ProPublica did not publish its source data or disclose how the information was obtained.

In 2007, and again in 2011, he reportedly paid nothing in federal income taxes because the he lost more money investing than he earned from other income, according to the report. He made so little in 2011, according to the US government tax code, that he was able to file for and receive a $1,000-per-child tax credithouseholds with over $100,000 in joint income weren’t eligible to receive the credit.

As a result, despite being a billionaire many times over in 2011, Bezos was able to receive a $4,000 credit from the federal government. That’s because Bezos’ net worth is largely tied to stock, which does not affect an individual’s tax bracket until shares are sold and that revenue is reported as income.

Billionaires like Jeff Bezos, whose net worth is currently about $190 billion, according to Forbes, and Bill Gates derive little wealth from their annual income. Instead, much of their net worth is tied to stock holdings.

Bezos, for example, owns a 10.3% stake in Amazon that’s valued at about $170 billion.

The majority of Bezos’ net worth – $170 billion – is tied to Amazon stock, which fluctuates regularly and has even left the billionaire jockeying for the world’s wealthiest title with Tesla CEO Elon Musk at times. At least $19 billion of Bezos’ wealth is not tied to his stake in Amazon.

Bezos can skip paying taxes on his accumulated wealth from the Amazon stock because stock gains aren’t taxed until they are realized by selling off the stock.

He’s sold some of his shares in the past for massive gains: $5 billion earlier this year, $3.1 billion in August 2020, and just shy of $2 billion the prior August. He’s also said that he sells about $1 billion in shares annually to fund his space rocket company, Blue Origin. It’s unclear what taxes he paid on those sales.

For the years he did pay federal income taxes between 2006 and 2018, Bezos paid a total of about $1.4 billion on a reported income of $6.5 billion, or a rate of about 21.5%. That reported income does not include the vast increase to his net worth during the same period – about $127 billion, according to Forbes – due to his stake in Amazon.

Representatives for Bezos didn’t respond to a request for comment as of publishing.

Got a tip? Contact Insider senior correspondent Ben Gilbert via email (bgilbert@insider.com), or Twitter DM (@realbengilbert). We can keep sources anonymous. Use a non-work device to reach out. PR pitches by email only, please.

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White House defends plan to hike capital gains tax, saying it’ll only hit the richest 0.3%, report says

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President Joe Biden is planning to propose a sharp increase in capital gains tax, according to reports.

  • A White House official defended plans to hike capital gains tax, according to a report.
  • President Joe Biden is set to propose the tax rises to 39.6% for the richest Americans.
  • The official told the Financial Times that it would only affect the wealthiest 0.3% in the US.

A White House official has defended plans to propose a sharp rise in the top capital gains tax rate to 39.6%, saying the changes would only hit the richest 0.3% of Americans, according to a report.

A senior official in President Joe Biden’s White House told the Financial Times the wealthiest Americans had been growing disproportionately richer.

“Many, many of the returns at the very top are what they call above-market rates of return, rents and so on,” the official said. “Taxing the people who are doing extremely well in the economy is one way of asking somewhat more from that.”

Biden is set to propose a major increase in capital gains tax from the current 20% base level this week, according to various media outlets.

Biden’s plan would propose raising the top marginal income tax to 39.6% from 37% and bringing capital gains tax in line with that for those earning more than $1 million a year.

When combined with the 3.8% surtax on investment income put in place under Barack Obama, it would take the tax rate on the wealthiest investors to 43.4%.

Republicans and many investors have criticized the plan to dramatically raise the tax, arguing that it will reduce investment and damage the economy.

However, the Biden official told the FT: “This is consistent with what the President had said on the campaign trail, which was that we needed to fundamentally reform parts of the code that affect the very, very richest or very highest income Americans, in ways to make sure that it is fair and not rewarding wealth over work.”

Yet Democrats’ razor-thin majorities in the House and the Senate mean the top rate for capital gains tax could well only end up at around 28%, according to analysts at Goldman Sachs.

“A 28% rate looks most likely, in our view, as it is roughly halfway between the current rate and Biden’s likely proposal,” the analysts said.

“This is also the rate that President Reagan and a Democratic House settled on a few decades ago when raising the tax from 20%.”

The White House has been contacted for comment.

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Nike, FedEx, and 24 other companies with $77 billion of combined income have avoided paying taxes for years, a new report found

Nike Beijing
Customers lined up outside the Nike flagship store on the opening day at Wangfujing Street on January 20, 2021 in Beijing, China.

  • 55 publicly traded companies paid $0 in federal taxes last year, a study by ITEP found.
  • Nike and FedEx are among 26 companies that have not paid federal taxes in three years.
  • In 2020, the 55 companies avoided paying about $12 billion in federal taxes.
  • See more stories on Insider’s business page.

55 of America’s biggest companies paid $0 in federal taxes last year, a new study from the Institute on Taxation and Economic Policy (ITEP) found.

The 55 publicly traded companies would have paid an estimated $12 billion in federal taxes if not for corporate tax breaks in 2020, including $8.5 billion in tax avoidance and $3.5 billion in tax rebates, the report found using regulatory filings and other information.

Nearly half of the companies have avoided paying federal taxes for the last three years, according to the report. Nike, FedEx, and DTE Energy were among 26 companies that recorded $77 billion in combined pre-tax income in the past three years, but did not pay any federal income taxes.

The news comes at the same time President Joe Biden looks to raise taxes on corporations. The White House announced this week that it plans to limit the number of companies that do not pay federal taxes, as well as increase the corporate tax rate to 28% – raising an estimated $2 trillion over the course of 15 years.

How do multi-billion dollar companies avoid federal taxes?

ITEP’s data found some of the nation’s biggest companies have been avoiding federal taxes for decades, dating back to the Reagan administration. The companies, which encompass a wide variety of industries, use a range of tactics, including tax exemptions and deductions.

While company tax returns are private, publicly traded companies must file financial reports that include information on federal income taxes. Using the financial reports as well as data on each companies’ pre-tax income, ITEP was able to analyze some of the major resources the companies used to avoid paying federal taxes.

In 2017, the Trump administration’s Tax Cuts and Jobs Act of 2017 amended the Internal Revenue Code of 1986, the Washington-based research group said the act failed to address major loopholes in the tax code.

“When President Trump signaled his intention to cut corporate taxes in 2017, he and Congress had an opportunity to pare back the many loopholes that have allowed companies to avoid tax on much of their income since the 1980s,” the report said. “Now, with three years of data published on the effective tax rates paid by publicly traded companies, it is clear that the Trump law has not meaningfully curtailed corporate tax avoidance and may even be encouraging it.”

Read more: When businesses should file taxes this year and how to get an extension if you need more time

The 2017 tax bill dropped the top corporate income tax rate from 35% to 21% – a corporate tax rate that is below average for most countries represented in the Organisation for Economic Co-operation and Development, a group that represents 37 developed countries. The act also allows companies to immediately write off the cost of new equipment and machinery.

Some of the loopholes ITEP found many companies used include tax breaks for executive stock options which allowed the companies to write off stock-option expenses.

Multiple companies, including Nike and Hewlett Packard, used federal research and experimentation tax credits to reduce their incomes, while companies like DTE Energy and Duke Energy used tax breaks for renewable energy to avoid paying federal taxes.

The CARES Act made it even easier for companies to avoid taxes

The $2.2 trillion CARES Act which was passed last year to help alleviate the economic distress of the pandemic and help businesses survive, provided the 55 companies with over $500 million in tax breaks, according to ITEP.

Dozens of publicly traded companies used provision from the CARES Act that temporarily allowed businesses to use losses in 2020 to offset profits earned in previous years, according to the research group.

FedEx was one of the companies that used the CARES Act to reduce tax bills from prior years when the tax rate was higher.

The company told Insider the CARES Act “helped companies like FedEx navigate a rapidly changing economy and marketplace while continuing to invest in capital, hire team members, and fund employee pension plans.”

Nike, HP, Salesforce, Duke Energy, and DTE Energy did not respond to a request from Insider for a comment.

In its report, the left-leaning research group pointed to several tax code amendments that could cut down on the number of companies that do not pay federal taxes, including a “minimum tax” for profitable companies, as well as cutting back on tax breaks for public companies.

Biden has repeatedly expressed interest in increasing taxes for major corporations as a way to fund his $2 trillion infrastructure plan.

On Wednesday, Biden called out Amazon for avoiding federal taxes. After paying $0 in federal taxes for two years, Amazon started paying federal income taxes in 2019.

Biden said he was aware the company was one of many Fortune 500 companies that use loopholes to avoid taxes, while middle class families are not afforded the same opportunities and pay over 20% tax rates.

“I don’t want to punish them, but that’s just wrong,” Biden said.

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2 ways the pandemic can change your taxes for 2020, and how to prepare

working remotely
Remote workers might have some tax changes to note next year.

  • Tax season, when it will be time to file your 2020 taxes, is right around the corner.
  • If you donated to charity this year, you can claim a deduction worth up to $300 on your tax return.
  • Remote work became the norm in 2020, but depending on where you worked from and for long, you may have additional taxes to pay.
  • This article is a contributed piece as part of a series focused on millennial financial empowerment called Master your Money.

Your financial life may have changed a lot this year, including experiencing some “firsts” that could mean your tax situation will be different when you file your 2020 tax return next year.

However, there are still opportunities to take control of your finances, including planning around your tax refund. I want to help you to get smart about your situation now, so you know what to expect and what steps to take now so there are no surprises at tax time.

Here are two tax issues to be aware of this year:

1. Claiming the new charitable tax break

Let’s start with good news: a new tax break allows people who don’t itemize the opportunity to claim a charitable deduction for cash donations (or a cash equivalent, such as a check, credit card, money order, or mobile payment).

You’ll get to deduct up to $300 from gross and taxable income on your return, reducing the amount of taxes owed. Keep in mind, the donation must be made to a qualified charitable organization, must be a cash or cash equivalent donation, and must be made by December 31, 2020. Donations of clothing and other non-cash items don’t qualify. 

The rules for recordkeeping still apply for the donation. If you donate less than $250, you must have either a bank record such as a cancelled check or credit card statement or a receipt showing the name of the charity, date and amount of the donation. If you donate $250 or more, you need a written acknowledgment from the charity.

2. Paying income taxes while working in a different state

The pandemic closed many offices and sent people home to work. If working remotely means you don’t cross a state line you usually cross or, in some cases, don’t enter a different city, you should keep detailed records of: 

  • When you started working from home
  • If and when your employer closed your office
  • If and when your employer reopened your office and invited you back to work
  • If and when you returned to your office

Generally, cities and states that have an income tax only tax income of people who live or work in that city or state. If you are one of the millions of Americans working from home, it is possible you will owe tax only to the state where you live and work beginning from the time you started working from home. These records will help you and your tax professional determine how to allocate your earnings between multiple states and cities should that be the case.

Accurately allocating your wages in 2020 as a remote worker and ensuring the correct amount gets reported to each state and locality will result in some taxpayers receiving a refund and others owing tax. The rules for each state are different and some rules are changing during the year so tracking the state and local rules and decisions will be important if you normally work in multiple states.

Kathy Pickering is the chief tax officer at H&R Block, and a member of BI’s Money Council.

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