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Makin' Sense: What Apple's Dodgy Tax Strategy Means for Your Finances Makin' Sense: What Apple's Dodgy Tax Strategy Means for Your Finances

Makin' Sense: What Apple's Dodgy Tax Strategy Means for Your Finances

by MakinSense Babe
May 31, 2013


 
According to the Financial Times, Apple has figured out a way to avoid paying $25 million in taxes per day. Apple’s CEO, Tim Cook, was recently grilled by U.S. senators in an effort to expose Apple’s seemingly dodgy tax strategies.
 
Apple avoids paying corporate taxes on some of their profits by setting up an offshore structure in Ireland called a “holding company.” If Apple takes ownership of this money in the U.S., they would have to pay a 35 percent corporate tax rate on these profits.
 
Apple’s ability to set up this offshore tax haven is not too different from Mitt Romney’s tax havens; both are legal and both are beating the government at their own game. Sure, the government can try to change the game by closing corporate tax loopholes, but they haven’t done that yet.
 
So instead, they scrutinize companies that have figured out a way to benefit from loopholes with the hope that the attention will bring awareness, and then change.
 
There are a few things to think about here: What does this mean for you if you own Apple stock? And what simple thing can we do with our own personal finances to bring awareness and then change?
 
If you own Apple stock, remember the dividend you receive recently increased. A dividend is money you’re paid, usually quarterly, out of the company’s profits. As a reminder, if you own an equity “fund,” there’s a good chance you own Apple stock indirectly through that fund.
 
One of the reasons why Apple had the ability to increase the dividend they pay you is because they borrowed money from the public. They issued Apple bonds instead of using this offshore money.
 
If Apple had used this “corporate tax sheltered” offshore money to increase your dividend, they would have to pay 35 percent in corporate taxes on that money. If that happened, this could translate into fewer dividend increases from Apple in the future.
 
For now, you’re fine. Business leaders continue to outsmart the government, and you’re benefitting from this as an Apple stockholder.
 
Pro Tip: It is important to know if you’re invested in a company’s stock that is “growing” their dividend payment, like Apple just did. A “growing” dividend is often more important than a “high” dividend.
 
What simple thing can we do with our own personal finances to bring awareness then change?
 
Studies show that we make better choices if we focus on the pride we feel with good behavior instead of focusing on the guilt that comes with our sometimes (default) bad behavior.
 
If you focus on not having dessert throughout dinner, you’ll order dessert. If you focus on how good you’re going to feel tomorrow by not drunk-texting your ex, you won’t drunk-text your ex.
 
You don’t need to be a financial whiz to change your default financial behavior. Behavior that might sound something like: “OMFG, I have no idea what this finance stuff means so I’m going to ignore all of it!” 
 
Stop focusing how little you know about finance and instead start focusing on how good you’ll feel when you start making small changes.
 
Small change number one: Take a peek at any of your financial statements. Count how many funds you’re invested in. If you watch this video and decide you’re invested in too many funds, that’s more than you knew yesterday and you’ve done enough for today. Great job.
 
Change happens by making small adjustments to your default behavior and focusing on how good you’re going to feel as a result. U.S. Senators focusing on Apple’s seemingly bad behavior doesn’t change the situation. They need a new plan if they want more tax revenue from Apple.

This post is part of a regular series of money explainers for non-finance people. Follow along and join in the conversation at good.is/makinsense.
 
Image via Wikimedia Commons
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