An analysis of Jeff Bezos’ personal tax situation suggests his purchase of the failing Washington Post Company may not be as self-indulgent as many have claimed.
In an open letter to Post staff, Bezos, the 49-year-old multi-billionaire and chief executive of Amazon.com Inc, said: “I won’t be leading the Washington Post day-to-day.”
That statement comes with a hefty tax consequence, making reporters even more perplexed as to what exactly motivated the 19th richest person in the world to pickup a an old, downward-sliding paper company.
One theory – that Bezos bought the Post for personal tax benefit – is complicated by his decision to stay in Seattle and maintain his focus on running the world’s largest online retailer.
Tax law mandates that in order for individuals to claim business tax breaks they must play an active role in the business. Otherwise, investors in businesses in which they play no role in would be able to offset losses against their taxable income.
For the first half of this year, the Post reported operating losses of nearly $50 million. Any business owner can deduct operating losses to lower their overall tax liability.
See our post: FYI: The Classifications of Income
But in order for Bezos to realize the business tax benefits, IRS rules require he spend at least 500 hours per year actively managing the Post. That’s roughly 10 hours/week, 2 hours/day, or one day/week. No matter which way you slice it, it won’t be easy for Bezos to continue his full-time job as Chairman and CEO of a company worth over $100 billion while still maintaining enough active participation in the Post to help lower his tax liability.
As reported by Reuters, “the law is murky in defining what qualifies as business activity for tax breaks, and subject to interpretation, but it generally includes making decisions and telling people what to do.”
Some media outlets are reporting that Bezos may have to reconsider his hands-off approach in light of these rules; but it’s unlikely that Bezos, the entrepreneur that upended the world of book sales and internet purchasing, was not already aware of this tax implication.
If Bezos does stay non-interventional with the Post, it may just be that, as others have suggested, his purchase was in part an altruistic pursuit to keep journalism alive.
- Don Graham explains why he’s selling The Washington Post to Jeff Bezos (washingtonpost.com)
- Bezos brings promise of innovation to the Washington Post (nytimes.com)
- Tax Rules Could Force Jeff Bezos Into A More Active Role At Washington Post (embargozone.com)
- Some thoughts on The Post being sold to Amazon’s Jeff Bezos (washingtonpost.com)
- Here’s The Most Cynical Reason People Think Jeff Bezos Bought The Washington Post (AMZN, WPO) (businessinsider.com)
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