Billions of dollars in tax credits go unclaimed each year, and many businesses aren’t taking advantage of the tax savings opportunities that are available to them.
How can you make sure that your business isn’t one of them?
The businesses that are most likely to save money on their taxes:
- Have created a solid tax strategy with an advisor that legally minimizes the taxes they pay; and
- Know what to look for and what tax savings opportunities may be available to their business.
Simply being familiar with opportunities your business may have to save can go a long way, and it can go even farther if you’re consulting an advisor who knows the ins and outs of your operations (and the tax code).
Below, we’ve provided just a few opportunities you should keep in mind as you consider your company’s tax strategy in order to position your organization for optimum tax savings.
1. Hiring Tax Credits and Incentives
There are many different hiring credits and incentives available to businesses that prioritize hiring individuals from certain groups. For example, your business could be eligible for a tax credit if you hired a veteran or someone who has been unemployed for a long period of time.
There are also tax credits that incentivize employers to create new jobs, retrain current employees and hire employees who live or work in distressed areas of the country.
2. Research and Development Tax Credit
If your business has been working on something new and innovative—or even if you have attempted a new project and have been unsuccessful—you may be able to claim the Research and Development (R&D) tax credit.
This credit covers a variety of research and development-related expenses, including the wages paid to your employees and the cost of supplies. In order to qualify for this credit, you’ll need to show that your business’s research efforts are meant to solve a particular problem, shed light on uncertainty or be related to developing a new component of your business.
If your company’s project research is or has been based on hard science, such as engineering, biological science or physical science, you may be able to take advantage of the R&D tax credit.
3. Cost Segregation Study
If you own or have recently purchased, constructed or substantially improved your new or used commercial real estate, you may want to consider taking advantage of a cost segregation study.
Cost segregation studies identify assets within a building that are eligible to be reclassified as shorter-lived assets with accelerated, or more favorable, depreciation methods. This, in turn, can lead to a reduction of current taxable income, deferral of income taxes and improved cash flows—all without having to amend your tax returns.
4. Accounting Method Review
Many businesses can benefit from a thorough review of their accounting methods, especially in light of the changes resulting from the Tax Cuts and Jobs Act.
Reviewing these methods can accelerate tax deductions, defer income recognition and reduce your current tax expenses. A review of accounting methods is particularly beneficial to businesses that have experienced significant growth, have only recently become taxable or carry large accounts receivable balances.
5. Negotiated Incentives
In an attempt to boost economic activity and development, state and local governments will often offer businesses a variety of incentives to begin or continue operating in a specific location.
There are a number of incentives, known as discretionary—or negotiated—incentives that your business may qualify for. These incentives include grants, property tax relief, reductions in your utility rates and various fee waivers.
Negotiated tax incentives are binding contracts, so it’s important to have sound tax guidance when evaluating your eligibility and commitment.
6. Export Incentives
Export incentives, which are designed to help businesses secure deals with foreign markets, are available to many businesses competing internationally.
The government offers these incentives to ensure that domestic products stay competitive in a global market. These include export subsidies and tax exemptions on profits that were made from exports.
With export incentives, the government will also collect less money in taxes from businesses in order to bring down the cost of the exported product. This, in turn, makes the products more widely available on the global market.
7. Fuel Tax Credit
The fuel tax credit is available to businesses that use certain types of fuels for specific purposes. You may be eligible for a fuel tax credit if you previously paid fuel taxes on gas that was used for a nontaxable purpose.
Nontaxable purposes include using the fuel to operate a commercial fishing boat or a school bus. Using fuel to operate farming equipment or to conduct other off-road activities is also considered a nontaxable purpose.
Get Help Finding Other Business Tax Credits
If you want to be sure your business is taking full advantage of all of the tax savings opportunities available to you, the best action to take is to talk openly with your accountant and advisor about what your options may be and if there could be any areas that are being overlooked.
In addition to the tax savings opportunities listed above, your company may also be eligible for additional credits and incentives, so it’s important to foster an ongoing conversation with your accountant about ways you may be able to save on your taxes.
This blog was originally published on April 24, 2019 and was most recently updated on February 10, 2020.