Taxes can be a tricky item to tackle for most individuals. Between knowing what to file and when to claim certain benefits or deductions, filing taxes can feel like trying to make magic using an alchemists cluttered and ingredient-deficient workspace.
The issues that await common tax payers are seemingly only compounded for those of big business and rich-elite where the numbers, filing options, applicable sections, write-offs, losses and a whole host of other considerations are multiplied and magnified.
For those handling uncommon amounts of income such as Fortune 500 companies or the million and billionaires of the world, there is a tax tool used to skirt the US federal income tax that most taxpayers rarely encounter in their lives.
The “net operating loss carryforwards” is a tool that several companies such as Microsoft, Amazon or billionaires such presidential nominee Donald Trump use to claim losses to offset a portion of tax liability.
While most in the US have yet to verify how well the offsetting tax tool has worked for Trump, it’s been reported that had he successfully applied it; he could have avoided paying a $916 million dollar business related loss in 1995 and possibly $50 million over the past eighteen years.
Fortunately for Microsoft investors and observers, the company has been a bit more forthright in sharing the details of the company’s finances and taxes, and its statements reveal the use of net operating loss carryforwards to essentially write off a chunk of tax liability the size of its now failed Nokia acquisition.
According to a report from Puget Sound Business Journal,
Earlier this year, Microsoft reported $8 billion in net operating loss carryforwards, including $6.3 billion in foreign losses. The amount Microsoft reports has grown since 2013 when the company reported $2.7 billion in net operating loss carryforwards.
While Microsoft may not be writing off the same Nokia acquisition each year, it is evident from the report that the company is using the offsetting tax tool to move around its cash pile, particularly in foreign areas. A predominant theory as to why Microsoft continues to use the offsetting tax tools involves the company’s interest in foreign talent acquisitions to further boost its position in machine learning, artificial intelligence and cloud solutions. By claiming many of its foreign acquisitions as startup losses, Microsoft can utilize net operating loss carryforwards to offset the price of purchase.
It should also be noted that while utilizing net operating loss carryforwards to supplant a swelling tax write-off, Microsoft has paid its share of $3.9 billion, $4.4 billion and $5.5 billion in taxes for fiscal years 2016, 2015, and 2014.
With taxes being a hot button issue during this US presidential election and a growing concern as the tech industry continues to gobble up worldwide market caps and profits, it’ll be interesting to see how many more times net operating loss carryforwards continue to appear in company tax filings in the future.