Join Jim Stice for an in-depth discussion in this video Tesla and tax planning, part of Income Tax Fundamentals.
- The payment of income taxes is a large and important business expense. - For example, every year Microsoft spends as much paying its income taxes, five billion dollars, as it does on all its other general and administrative expenses combined. Procter & Gamble, the large consumer products company, spends more on income taxes each year, about three billion dollars, than it does on researching and developing new products, only about two billion dollars. - So, businesses are very careful to plan their operations to legally minimize the income taxes that they pay.
- In fact, countries, provinces, and states use their income tax rules as bargaining tools to attract businesses to their areas, bringing jobs and other economic activities. - Let us give you one example. Have you ever seen a Tesla electric car? - As a matter of fact, I have seen one, parked in front of a hotel in Hong Kong. I looked at it, but I didn't dare touch it. - A big problem, maybe the big technical problem with electric cars is battery technology. - Correct. Battery costs, charging time, and travel distance on one charge are key battery technology challenges.
- In 2014, Tesla Motors negotiated with many different states in the United States as the company decided where to build a large lithium ion battery factory. The factory is expected to cost five billion dollars to build and is expected to employ 6500 people when it is in full operation. - The U.S. States of Nevada, Texas, New Mexico, Arizona, and California offered tax breaks to Tesla to induce the company to locate the battery factory in their state.
- It turns out the winner was Nevada, which offered 1.3 billion in tax incentives over 20 years. - This is an example of tax planning. In addition to all of the energy, transportation, and local workforce factors considered by Tesla in deciding where to locate the battery factory, the company also considered the tax implications. - Good business practices, as well as good personal financial management, involve careful income tax planning. - Let's discuss some basic principles of income tax planning.
This is a self-contained introductory course to income tax, but if you'd like more information about accounting in general, check out the Stices' foundational course, Accounting Fundamentals.
NOTE: The information in this course applies only to the United States.
- The history of income tax
- Tax brackets, rates, deductions, and credits
- Completing a basic tax return (1040A)
- Tax planning
- Shifting income
- Understanding corporate income taxes
- Avoiding tax-evasion schemes
- Tax issues for small businesses