- Remember that a tax break is a provision in the
tax rules that permits a taxpayer to legally pay
that permits a tax payer tolegally pay less income tax.
less income tax.
Let's talk about some taxbreaks enjoyed by US businesses.
Let's talk about some tax breaks enjoyed
by U.S. businesses.
US based corporations are notrequired to pay US income tax
U.S.-based corporations are not required to
pay U.S. income tax on much of the income that they
on much of the income that they generate
generate outside the United States.
outside of the United States.
This is a tax break that is not allowable for
for individual US citizens.
individual U.S. citizens.
An individual U.S. citizen is taxed on
on her or his world wide income,
her or his worldwide income, meaning that she or he
meaning that she or hemust pay US income tax
must pay U.S. income tax on income earned anywhere
on income earned anywhere in the world.
in the world.
In contrast, U.S. corporations don't have to pay tax
on much of their income that is generated
outside the United States.
That is a tax break for a U.S. corporation.
Now, as a U.S. individual who occasionally makes
money outside the United States and pays U.S. income
tax on it, I view this as a tax loophole for corporations.
I view this as a taxloophole for corporations.
Remember, a tax loophole is someone else's tax break.
Another example of a business tax break
Another example of a business tax break is that
is that investment fund managers
investment fund managers are sometimes compensated
are sometimes compensatedwith something called
with something called "carried interest."
carried interest.
Rather than being paida salary or a bonus,
Rather than being paid a salary or a bonus,
they are given an ownership share of the future
they're given an ownership share
of the future profitsfrom an investment fund
profits from an investment fund that they have managed.
that they have managed.
That share of profits iscalled carried interest,
That share of profits is called carried interest.
If the investment fund manager keeps that money inside
inside the fund for aspecified number of years,
the fund for a specified number of years, that income
that income is nottaxed as ordinary income
is not taxed as ordinary income, but is instead given
but is instead givenfavorable tax treatment
favorable tax treatment as long-term capital gains.
as long term capital gains.
For an investment fund manager, this is a tax break.
But because this tax break isnot available to most people
But because this tax break is not available to most
people, you and I might consider it a tax loophole.
you and I might considerit a tax loophole.
Another business tax breakis the allowable deduction
Another business tax break is the allowable
deduction for depreciation.
for depreciation.
For example, a business is allowed to subtract from
its taxable income the cost of any large
from it's taxable income thecost of any large equipment
equipment or buildings that it buys.
or buildings that it buys,
This is called depreciation.
In fact, the tax code allows businesses to subtract
to subtract it's depreciationeven more quickly
this depreciation even more quickly than the
than the equipment orthe building wears out.
equipment or the building wears out.
Small businesses can sometimes write off the entire
the entire cost of equipment
cost of equipment in the year that it's purchased.
in the year that it's purchased.
This is called accelerated depreciation.
and this is the largest tax break
This is the largest tax break enjoyed by businesses.
enjoyed by businesses.
A tax break is aprovision in the tax rules
that permits a tax payer tolegally pay less income tax.
a taxpayer to legally pay less income tax.