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Frugal Friday: Does Apple owe the Government More Money?

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Happy Friday everyone! To all my US-based readers, I don’t know about you, but I am ready for a three day weekend! Memorial Day weekend is upon us and hopefully everyone has great weather this weekend to enjoy the holiday. Ever since we started our own business we have come to learn that we do not always get to take advantage of the long weekends, but that is ok. It looks like this go around that we actually will, which is great. Before I get started with today’s post I would highly encourage everyone to take some time to devote your thoughts/prayers to those families in Oklahoma who were ravaged last week by the gruesome tornado, if not giving as well. I don’t watch much in the means of news and to see what they have experienced is sobering to say the least.

That said, I would like to share some thoughts on an article I read on Yahoo Finance earlier this week about Apple CEO Tim Cook being grilled before Congress about Apple dodging paying federal taxes over the last number of years. I will say this was an eye-opening article and learned a few new things. Prior to reading the article I would put myself in the camp that Apple is just another greedy multinational corporation that will do what it can to pay no taxes at all and game the system to a fault. To be honest, it is clear that they are using the system to their advantage which does mean that they’re able to add even more to their massive cash hoard. But, as was cited in the article, a company or individual does have the right to pay the minimum in taxes that the law requires. Being business owners ourselves, I know that we do that. We’re constantly looking for ways to lower our tax liability and will do anything legally we can to keep more money in our pockets as opposed to the government coffers. Does that mean that we’re pariahs who should be questioned for what we do? Of course not, because we’re doing what anyone else would and looking out for ourselves while paying the minimum that’s required of us. The issue I see with Apple is two-fold really as they’re doing it on a much more massive scale and they can afford to hire the best tax attorneys in order to allow them to legally (but maybe not ethically) navigate the many tax loopholes the U.S. tax system affords them.

The article went on to detail numerous things Apple does to avoid taxes from shielding cash from taxes to the most ingenious act of setting up a system that allows them to have a subsidiary that has no tax residency anywhere. I’ll not go into the details of that last little nugget, but it is an enviable situation to be able to find yourself in. The easy thing would be to bash Apple and say they’re crooks, however let’s look at the amount they do pay in taxes. According to the article, Apple paid nearly $6 billion in taxes for the 2012 fiscal year and is likely the largest corporate tax payer here in the States. Beyond that, their taxes accounted for $1 out of every $40 collected from corporate tax payers last year. So, they do pay in taxes, but at the same time they also shielded nearly $10 billion in taxes in 2012 as well. Apple’s argument is that the tax system is antiquated and contains many loopholes which they’re going to take advantage of. I am not a tax professional, but I do know that the tax code here in the States is riddled with loopholes and numbers thousands of pages long. They claim that if the government were to simplify the tax system they would gladly pay more in taxes. Of course I question that, being the cynic that I am, but they bring up a great point that the tax system can and should be simplified to make it easier for everyone involved. I don’t know what that would look like and that’s not the purpose of this post, other than to say that change would be a good thing. Beyond whether or not you consider Apple or the government to be at fault, there is the question of ethics. Is it ethical for a company the size of Apple to do what they can to avoid paying taxes? While there may not be an easy answer, it is a question that needs to be asked. I know that many other companies do much worse than Apple, but should that matter? Should they be paying more because they’re so successful? These are all weighty questions that we should ponder, especially as we choose to spend our hard earned dollars as consumers.

Thanks for listening to my ramblings on the Apple topic. Now to the good stuff! It’s been another great week and I’ve had the chance to read some solid blog posts. If you’re not too busy this Memorial Day weekend, I encourage you to check out some of the selected blog posts.

Blog Post of the Week

The Perils of Working From Home on Club Thrifty

Holly writes about the things she has discovered now that she has recently taken the plunge and left her office job behind. I found myself laughing and also nodding my head in being able to relate to many of the things she described. Sure, working from home may not mean that you deal with that cranky co-worker anymore, but it has its own unique set of challenges. However, those challenges are more than balanced out by the numerous benefits like setting your own schedule and can be incredibly rewarding. While we may not have a co-worker like Pablo spending the day with us, we do have our cat Willie who is constantly knocking over the trash can digging for buried treasure. If you’ve not been over to Greg and Holly’s site, then I encourage you to do so and say congrats on taking the leap!

Other Blog Posts That Ruled

Pursuing What I Love or What Brings in the (Stable) Money on Making Sense of Cents

Out of Sight, Out of Mind: Debt Doesn’t Play That Game on Debt RoundUp

96 Month Car Loans are Insane on Sqirrelers

Why I Dislike Investing in the Stock Market even in Good Times on Financial Samurai

How to Become the Best of the Best at Your Company on One Smart Dollar

How to Save for Your Child’s College Education on The Heavy Purse

Odd Search Terms

Being frugally mean…That takes frugality to a whole new level

How to get rich online…Start a blog and you’ll become rich in no time at all!

Budget food shopping at Wal-Mart…Calling it food is being just a bit gracious!

I thought I graduated college…I think you’re just fooling yourself!

Can Wal-Mart buy my debt…Now that’s a question!

Should I pay down debt or eat healthier foods…I did not realize it was an either/or situation.

Why do I scratch my head every few minutes…One word – Lice!

Can we deduct the loss of a bottle of whiskey… If you only knew how many times that question crossed my mind!

 

What are your thoughts? Is Apple to blame for what they’re doing to avoid taxes, or are they only doing what the government legally allows them to do? Do you have any fun plans for the long weekend?

 

Photo courtesy of: Bryan Alexander

 

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I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. I'm also a freelance writer, and regularly contribute to GoBankingRates, Investopedia, Lending Tree and more. If you're wanting to learn how to monetize your blog, check out my blog coaching services to see how I can help you take your site to the next level.

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42 Comments

  • I am not a big fan of big government or big corporations. However, as long as they were following the current law, they should do everything they can to reduce their liabilities. Their obligation is to their shareholders.

    • John says:

      I agree FMM, their obligation is to their shareholders. If they were looking to pay more in taxes then it would be interesting to see how long Cook would last.

  • If you can find a way to legally get around paying taxes, and it is legal, then you’re not doing anything wrong at all. Congress needs to re-write the tax code so that what they’re doing to avoid taxes isn’t an option. Otherwise, everyone needs to quit complaining 🙂

    • John says:

      I agree Lance, on both fronts. They’re doing what’s in the best interest of their shareholders which they should be doing.

  • Matt Becker says:

    I’m also skeptical of their argument that they’d “happily pay taxes” if there was a simpler tax code, but I don’t see anything wrong with them operating within the law to minimize their taxes. Regular people do that all the time. We use IRAs and 401(k)s. We tax-loss and even tax-gain harvest. We hire CPAs to help us figure out the best tax strategy for us. Not paying taxes you legally owe is a crime. Working within the tax system to maximize your profits, whether you’re an individual or a giant corporation, is just smart financial management.

    • John says:

      I am skeptical as well on that Matt, but that’s the risk in it all. I really do not see a problem with it either as long as it’s within the guise of legality.

  • Hey John I am definitely excited for the three day weekend, even if I spend most of it on the couch recovering from surgery. I have a pretty strong opinion when it comes to tax policy: make it so that companies DON’T have loopholes that allow them to avoid taxes! If the code is set up in a way that a company can legally avoid most taxes by taking advantage of it’s complexity, we need a less complex tax code! The small businesses that can’t afford to staff a bunch of tax lawyers and CPAs to take advantage of these loopholes end up being the losers. Reform is my answer.

    Hope you have a great weekend!

    • John says:

      I would tend to agree DC, that reform on some level is needed. I think there’ll be a big roadblock to that as the special interests will likely try what they do to block it. Have a great weekend and best wishes on the recovery.

  • CashRebel says:

    I think corporations are around to make money. I don’t blame Apple at all for taking advantage of the ridiculous loop holes enacted by congress overtime. Since I’m a renter, I don’t get to take advantage of the mortgage interest tax deduction, but that’s ok, it’s my own choice. If there’s anyone to blame, it’s the government, no a company who’s just playing by the ludicrous rules.

    • John says:

      I would agree CR. They have to look at the interests of their shareholders, otherwise the powers that be would not be doing their job.

  • Mr. 1500 says:

    I read that the money that they aren’t paying taxes on was earned outside of the US. Taking that one step further, the same article stated that no other G7 country taxes money made outside of it.

    I think it all goes back to your point that our tax code is ridiculous. I know a person who make double what I do, but pays less in taxes than me. He has a corporation, so utilizes a whole array of deductions and loopholes that aren’t available to a W2 guy like myself.

    I’m no tax expert, but the flat tax plan championed by Steve Forbes a while ago seemed like a good idea.

    • John says:

      I actually think that was in a different article on Yahoo Finance. They had 3 or 4 on the same day, but I do remember reading that. That said, yes the tax code is just a bit on the ridiculous side and would benefit greatly from being made simpler.

  • pauline says:

    Cool, enjoy the long weekend! I am flying back to Guatemala and not really looking forward to the long trip, but excited to go home.

  • Michelle says:

    I am so thrilled that it’s Memorial Day weekend. WOOHOO! And thanks for the post mention 🙂

  • Thanks for the mention John. I am right there with you John. In the past five years I haven’t known what a weekend is much less a long weekend. 🙂

  • I would probably do the same thing as Apple. The biggest problem is that our corporate tax rate is extremely high, so most companies are going to find all the loopholes that they can. They are not doing anything illegal, just playing within the confines of the law. Yes, simplifying the tax code will help, but bringing down the corporate tax rate is the best step.

    Thanks for the mention John. I hope you have an awesome weekend!

    • John says:

      As would I Grayson and think both of them need to be changed. Of course, that is much easier said than done. You have a good one as well.

  • If I were an Apple shareholder (I’m not), I’d be pleased management has taken steps to limit tax liability, just as I’d be pleased by any other cost control initiative. The view that corporations or individuals who take legal steps to save on taxes are somehow unpatriotic or not paying their fair share is silly, imo. Those who don’t like the consequences of the tax code should spend their energy advocating changing the code, not bashing those who understand it well enough to minimize their taxes! 🙂

  • krantcents says:

    If the contest is between the government and private industry, private industry will always win. The only way Apple will repatriate their profits is if there is an incentive. Cook is supposed to maximize profits and there is nothing unethical (tax wise) about what he is doing.

  • Mackenzie says:

    Can I just say, I think it is so funny that you always get search terms revolving around head scratching? And what makes it even more funny, is that people are actually typing in these search terms!

    Have an awesome weekend John 😀

    • John says:

      Ha ha, I agree Mackenzie. I see some of the ones I get and it just makes me shake my head. I think I am getting them because of my Things that Make Me Scratch My Head post a few months back.

  • This one is a toughy John! Apple is doing it legally but ethically is quite questionable. If I was the CEO of Apple, I would probably do the same thing though. Rich or not, we all like saving money. I’m happy the Frugal Rules household gets a 3 day weekend to relax 🙂 Enjoy it!

    • John says:

      It is on one level GMD, but at the end of the day they’re looking out for the best interests of their shareholders. You have a great weekend as well.

  • Okay, what’s up with all the head scratching searches bringing up Frugal Rules? LOL!

    As you said, it’s tricky. As a business owner, I’m looking for every legal tax break possible, Apple is just doing it on a massive scale and with massive numbers. I do agree that the tax code is a confusing mess and it needs to be simplified for everyone.

    Thank you for the mention, I truly appreciate it. I’m glad you and your family have a chance to enjoy the long holiday weekend!

    • John says:

      I know. I think it’s from my Things That Make Me Scratch My Head post a few months back. I think it is tricky Shannon and at the end of the day they’re doing what will be in the best interests of their shareholders and the tax system does need to be simplified. You have a great weekend as well!

  • anna says:

    Oh weird, I’ve had the should I pay off debt or eat healthier foods pop up on mine, as well. If the loopholes exist, then I don’t blame Apple for taking advantage of them – I think it would be human nature to do so. I do agree, though, to simplify and get rid of loopholes! If they still don’t pay after that, then that’s when I think they’re crooks.

    • John says:

      Ha ha, then I am in good company then. 🙂 I agree, they’re simply doing what our tax system is affording them the ability to do.

  • Great reads! Hope you enjoy the weekend.

  • I don’t blame Apple, I blame our terrible tax code!

  • Squirrelers says:

    Thanks for the mention! Have a great weekend.

  • Jose says:

    I find it ironic that our government sets up such a complex tax system and then beats the crap put of corporations that play the game too well. Apple should take no blame or have any shame in doing what a public corporation is supposed to do, namely protect and the investors money. If the Senate and congress wants to blame anyone it should be themselves for allowing such a complex and confusing tax code to exist in the first place!
    Speaking of playing the tax game too well, corporations get away with it. We don’t. the AMT is there to change the rules for us in case we play the game too well!

    • John says:

      Lol, I could not agree more Jose. They need to look in the mirrors to see the cause of the problem. Apple is only doing what the system legally allows them to do & likely should do in order to look out for the best interests of the share holders.

  • Debt Blag says:

    It’s an interesting point.

    But I’d err on the side of blaming Apple. It’s silly to think that their tax relationship with the government starts and stops with their tax attorneys and accountants. They almost certainly spend an equal, if not greater amount, lobbying and fundraising for members they want to influence on tax policy — either directly or through organizations like the Chamber.

    If they genuinely cared about fixing the tax code, they could lobby toward that direction… or at least not spend so much to keep the code like it is.

    • John says:

      Interesting argument, though I would respectfully have to disagree. They are only doing what the current system is allowing them to do and are doing it legally. So, why should they not take advantage? If they did not then the powers that be would be out the door in a heartbeat because the share holders would give them the boot for not looking out for their interests.

      If the government is stupid enough to allow the loopholes then the onus falls on them to change it and not us to hand over more money because they’re unwilling to change.

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