In the event that corporate tax is eliminated, it is expected that there will be a reduction in the tax burden for firms, and this will result in increased income for these firms. However, this is not so for Amazon Inc. since the company has a record of using techniques to lower the taxes imposed on it, which is a way of protecting its customers from irregular price inflation (Kim, 2016, par ). Since the corporate tax is likely to be reduced from 35% to 15%, this will ensure that the company is able to accumulate more revenue than it has accumulated in the past years (Kim, 2016, par 10). This is with regards to the fact that it has been making very little profit in the subsequent years in comparison to other companies of similar size.
Since elimination will result in a slight increase in the amount of profits made by the company, there will be changes in the income statement which is directly affected by taxes, seeing as it is in charge of recording expenses incurred by the company. An elimination of taxes will result in a reduction in the amount of expenses incurred by the company, thus a lesser amount of expenses will be recorded. Since this elimination will result in increased revenue, a higher amount of profits will be recorded in comparison to previous years. On the contrary, there will be no change on the balance sheet since it only contains values of assets, capital, and liabilities, hence will not be affected by the elimination of taxes since it is not included therein.
Income tax rate
The company's income tax for the fiscal year 2016 was $135,987,000 (NASDAQ, 2017). In calculating the tax rate for Fiscal Year 2016, the income tax in 2016 is divided by income earned by the company before the deduction of taxes. Seeing as the company was deducted a total of $1,425,000, the income tax rate for the company was 1.048 percent. However, in the event that there is an increase of $2,000,000, there will be a slight change in the income tax rate
When looking at the effect on the balance sheet and on the income statement, an increase in the income by $2,000,000 to amount to $137,987,000 and this will result in an increase in the amount of tax deducted from the Company. This will result in an increase in expenses covered by the company.
The foreign tax paid by Amazon in the Fiscal Year 2016 is not provided as the Company is not subject to the US tax laws regarding foreign subsidiaries since it continues to invest these earnings in foreign countries. Based on the assumption that the amount invested is directly proportional to the amount of foreign tax, the foreign tax for the fiscal year 2017 was $2.8 billion (Stock Analysis, N.d., par. 1).
Based on the company's financial information, employees are given a retirement savings plan commonly known as the 401(k), a defined contribution plan, whereby employees are allowed to take out savings from their salaries before taxes are deducted from them. This reduces the overall tax burden on the firm as it is later on imposed on the employee, thereby ensuring that company revenue is not wasted. This plan is also prone to change due to their flexibility, thereby making it easy for the company to adjust the amount paid to paid to the defined contribution plan based on the irregularity of the amount of revenue earned by the company. The plan also encourages the employees to directly invest their money without directly spending it, thus benefits the employee.
With regards to the financial statements of the company, this pension plan reduces the amount of tax deducted from the revenue, thus affects the income statement by reducing the amount of money recorded under the expenditure. This affects the income statement. Since taxation on the revenue is not included in the balance sheet hence will not affect any component of the balance sheet.
Other types of retirement plans that can be used by the company include the defined benefit plan that will allow employees a specific amount of benefits and the Simplified Employee Pension Plan that allows employees to create Individual Retirement Accounts for regular contributions based on how favorable the tax on their income is. The different alternative that can be used by the employees is the defined benefits plan as this will ensure that its revenue is budgeted for the future, thereby limiting the amount of tax deducted since the tax will be deferred. Since the final amount of pension fund is calculated using a given formula based on the number of years of service of the employees, age and an average of the employee's salary. This way, the company does not have to rely on the returns from its investments to pay the defined contribution plan. As a result, the company is able to save most of its returns seeing as there has been a decline in the amount of profit made in the past few years.
Kim, E. (2016). Trump Warned Amazon Would Have Problems under his Presidency- Heres What Could Happen. Business Insider. Retrieved from http://www.businessinsider.com/how-trump-presidency-will-affect-amazon-2016-11?IR=TNASDAQ. (2017). AMZN Company Financials. Retrieved from http://www.nasdaq.com/symbol/amzn/financials?query=income-statement
Stock Analysis. (N.d.). Analysis of Income Taxes: Amazon.com Inc. (AMZN). Retrieved from https://www.stock-analysis-on.net/NASDAQ/Company/Amazoncom-Inc/Analysis/Income-Taxes
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