Businesses today need to stay lean and agile, while maintaining innovation.
In order to realize and grow that vision, you need to maximize profits and minimize taxes.
Not every tax benefit listed here will be useful to every business, but there may be some you currently aren’t taking advantage of that could help your company’s profitability.
These tax benefits are highly lucrative and should be explored by every business:
Have you made or will you make equipment purchases?
Section 179 Depreciation: You may be able to immediately write-off any equipment purchases up to $500,000. Congress recently made this tax benefit permanent, allowing for far greater tax planning.
Bonus Depreciation: This is for new equipment only (Section 179 can be for new or used equipment), but it can add up to big savings. Bonus Depreciation allows you to write-off 50 percent of the asset cost in the first year, and then you can depreciate the other 50 percent over five-to-seven years. This benefit will be reduced to 40 percent in 2018 and to 30 percent in 2019. Important Update: The Tax Cuts and Jobs Act greatly enhanced equipment depreciation options. Check out this article for the new limits or contact us at info@concannonmiller.com with questions.
Doing Business in Multiple States?
Corporate Net Income Tax Nexus: If you’re a C Corporation and your state has a high corporate net income tax rate, you could see some significant tax savings by expanding your business activities into other states. Your total state income tax liability may actually be lower.
Every state’s nexus rules are different, but most state’s apportion income on three criteria: sales, payroll and property within the state. The more instate activity, the greater chance you may have nexus in the state – having sales representatives, taking orders, signing contracts, storing inventory and renting equipment or facilities will all create nexus allowing the corporation to apportion its income.
Are you researching new products?
R&D Tax Credit: The Research and Development Tax Credit can be very lucrative since it is a dollar for dollar reduction in tax. The end result doesn’t even have to produce a new product, but you can earn tax credits for qualified expenses, including wages for qualified services, supplies used in R&D activities and up to 65% of contract services simply for experimenting with new processes or product development. Pennsylvania also offers R&D Tax Credits in addition to the federal benefit—you may be surprised at what qualifies.
In addition to manufacturing, the credit is available to a wide variety of industries, including architecture, construction, engineering, life sciences, software, telecommunications, and waste management. Do you meet the 4-Part Criteria? Click Here.
Do you make something?
Domestic Production Activities Deduction: DPAD allows businesses to take deductions on the production of property you manufacture, produce, grow or extract in whole or in significant part in the United States. The deduction is 9% ofqualified production income, up to 50% of W-2 wages. A typical example is on $100,000 of qualified net income, your company could get a $9,000 deduction. In addition to manufacturing, the deduction is available to several other industries, including architecture, construction, engineering, and software. Important Update: The Tax Cuts and Jobs Act eliminated DPAD. Please check out this page for news on Tax Reform changes or contact us at info@concannonmiller.com with questions.
Have you bought or built a facility?
Cost Segregation Depreciation: Did you incur costs during the building and construction or purchase of your facility? You can likely accelerate some depreciation with a cost segregation study, an engineering-based analysis of the costs associated with the acquisition, construction, or renovation of a building.
Business property, as a whole, can be depreciated over 39 years. But many building components can qualify to be depreciated over far fewer years, which allows for greater tax savings.
Though cost segregation depreciation, a wide range of building elements can be classified as shorter-lived assets, including electrical installations, plumbing, mechanical components, and finishes. These assets can be depreciated over as little as 15, 7 or even 5 years. Learn more about cost segregation depreciation here.
Like-Kind (1031) Exchanges: Taxes on the gains from the sale of certain types of assets can be deferred if the proceeds are used to purchase a similar asset within a specified period of time.
Doing business internationally?
IC-DISC: Under an Interest Charge – Domestic International Sales Corporation, exporting companies are allowed to cite a portion of their sales as a commission to the IC-DISC, and then the IC-DISC shareholders only have to pay tax on the dividend income at a preferential rate. Learn more about the benefits of IC-DISC here.
Transfer Pricing: This tax method can be used to sell a product from one subsidiary to another within a company to provide tax savings.
Foreign Tax Credit: If you pay or accrue foreign taxes to a foreign country or U.S. possession and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.
Looking for more tax savings?
Check out our Tax Opportunities for Businesses chart, offering details on 21 tax benefits businesses can take advantage of.
The chart covers tax benefits for equipment purchases, building expansions and some companies may qualify through their normal operations. It also includes examples and potential values businesses could realize in tax savings.
Click here to download it now.
