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Are You Paying Too Much Tax?

Andrew Presti

Incentives Provide Opportunity for Tax Relief

If you’ve been paying attention to the news lately, you are probably aware that many small business owners are likely to see larger tax bills in the near future. From increases in personal income tax rates, to capital gains and dividends rate increases, and additional taxes stemming from healthcare reform implementation, you are beginning to see an increase in taxes that affect business owners.

You may not know that along with these tax increases, there are many opportunities for businesses and owners to reduce their tax liabilities. While Congress is certainly looking for additional revenue opportunities, they are also creating incentives for American businesses to invest in their people, their technology, and their equipment. Many activities that are seen as beneficial to the long-term health of the American economy have specific tax reducing rewards associated with them in the form of deductions and tax credits. Are you taking advantage of the incentives designed to make your business more competitive? Surprisingly, many businesses aren’t. Here’s a summary of three types of tax incentives designed to make your company more competitive both locally and globally.

General Business Credits

General business credits are a set of tax credits which can provide a dollar for dollar decrease in your tax liability. If you have $10,000 in general business credits, you may be able to reduce your tax bill by the same amount. In most cases, general business credits are applicable to both corporations and pass through entities such as S-Corps and partnerships. General business credits are generally activity based – meaning they reward business for certain activities which Congress has deemed beneficial to the overall economy. These credits include R&D tax credits, credits for hiring specific employees from target groups, green energy and energy efficiency credits, low income housing credits, credits for small employer health insurance premiums, employer provided childcare facilities, and many more.

Unfortunately, many businesses that qualify for general business credits are unaware of the opportunity. The only way to ensure that you are claiming the credits designed to help your company is to combine an understanding of your activities with knowledge of the opportunities provided by the law. A thorough incentive review with a qualified advisor could yield substantial savings.

Export Incentives

The tax code also provides a substantial incentive for U.S. based manufacturers who sell products for use outside of the country. The IC-DISC is especially useful as a tax savings tool for S-Corporation shareholders. Surprisingly, it is also probably significantly underused by that same group. IC-DISCs provide an opportunity to pay a lesser tax rate on a calculated commission paid to an established IC-DISC Corporation. What does that mean? In many cases it means big savings for exporters and their shareholders.

If you manufacture and export products, you need to explore the value provided by an IC-DISC. It’s not a gimmick or a risky tax strategy. It’s a specifically designed incentive provided by Congress to help American companies compete in the global market. The government wants U.S. based exporters to take advantage of the IC-DISC.

Investment Incentives

While general business credits and export incentives can be extremely valuable, they are also limited to businesses who are taking part in very specific activities. What about other growing businesses that are investing in their future? Fortunately, there’s something out there for almost everyone. Congress views current capital investments as critical to the future growth of the American economy. They want American businesses to buy new equipment, move forward with expansion plans, and make the decisions needed to ensure that our economy keeps moving forward. To that end, they have provided incentives which reward certain current capital investments with immediate tax benefits. These include Section 179, which allows for expensing, rather than capitalizing, up to $500,000 in purchases of qualified personal property, land improvements, and qualified leasehold improvements which are placed in service before the end of the year. A $200,000 investment in qualifying equipment could generate a matching deduction, reducing your 2013 tax liability substantially.

Congress has also provided for 50 percent “Bonus Depreciation.” Bonus Depreciation provides yet another opportunity to accelerate your depreciation for qualified purchases in the current year. That means lower taxable income, lower taxes, and higher cash flow. Bonus depreciation applies to similar purchases as does 179, with a few differences. Outside of property that qualifies for Section 179 and Bonus Depreciation, there are also depreciation based opportunities for real property including cost segregation. Businesses purchasing, building, or renovating real estate should fully explore all available opportunities for accelerated depreciation. 

How Can You Maximize Your Incentives and Reduce Your Tax?

Given the wide variety of incentives available and the differing requirements for qualification and substantiation that goes along with each, working with a qualified advisor is the best way to maximize your benefits. A comprehensive review of your business activities and available incentives may uncover substantial savings. At Presti & Naegele, our team of advisors helps leading businesses and their owners identify and claim the right incentives for their organization. If you need an advisor that is looking out for your best interests and proactively finding opportunities for savings, we would love to talk with you.  Call us today to get started.