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Every year we see new headlines about seemingly profitable major corporations paying zero income tax.
But as outrageous as the headlines sound, the truth is almost always much more complicated, and much less shocking.
As individuals, we don’t pay taxes on every dollar we earn.
Tax laws allow us to reduce our taxable income through the standard deductions and even benefits for investing in our retirement, while tax credits further reduce the taxes we owe.
In the same way, Congress gives businesses legitimate deductions towards their taxable income, as well as credits towards the taxes they owe.
This includes credits for investing in research and development, and deductions for writing off physical investments like machinery or factories.
When businesses suffer losses or erratic business cycles, Congress also allows them to offset their taxable income, to ensure they’re being taxed on average profitability.
These policies are important because they help protect employment and job creation, and they encourage advancements that make our lives better and help the economy.
We would live in a very different world without these policies—one with fewer medical breakthroughs, less life-changing technology, fewer conveniences, and less investment in clean energy.
These deductions and credits enable companies to make investments in the future that we all benefit from.
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TaxEDU was made possible thanks to the generous support of the Stiles-Nicholson Foundation.