I remember the early 1980s when my grandmother came home with a big slab of cheese from the government give-away. President Reagan and Congress had signed an $11 billion farm price-support bill and would give away 30 million lbs. of surplus cheese to states to distribute to the needy. Today, our country is struggling in an economy we haven’t seen since the Great Depression. While I don’t expect a hand-out or slab of cheese on my doorstep, it occurred to me that there are so many tax incentives available to both individuals and businesses that aren’t being maximized. These tax incentives are, in a different form, a “giveaway” or “freebie” to US small businesses and individuals. They have a greater purpose than a slab of cheese and should be used by businesses to grow their businesses.
Why wouldn’t you take advantage of a lower tax rate?
For every dollar earned by a corporation or individual, a portion of that dollar goes to our federal and (in most states) states governments. In some cases, a portion also goes to the local city or other municipality for the right to conduct business in their jurisdiction. Why wouldn’t you pay a lower overall tax rate if you could do so legally with those incentives that apply to your business or as an individual.
While everyone must pay tax, the law does not require you to pay more than your legal share.
Some incentives span many industries
At Acena Consulting, we help our clients and their CPAs to make sure each client is taking advantage of those tax incentives that apply to them and are developing the proper documentation to support those under audit. Here are a few that span many industries should be considered for your business or clients:
Domestic Production Activities Deduction (DPAD): if you are engaged in production activities in the US and meet the qualifications, you can receive a substantial deduction based on your costs to produce. This incentive applies to manufacturing, engineering, architecture, construction and many other industries.
Research & Development Tax Credits: A tax incentive that is widely under-utilized and often misunderstood that should be a critical component to many businesses tax strategy. If your company is developing or improving on products, processes, software, techniques, formulas or inventions, you should be looking at this tax credit to see if it applies. We aren’t talking rocket science and white lab coats to qualify.
IC-DISC: For those that ship products outside the United States (yes, that includes Canada and Mexico), there is an additional tax incentive available called an IC-DISC (Interest Charged-Domestic International Sales Corporation). The IC-DISC is a US company that elects IC-DISC status and allows a company that exports products to calculate an additional savings based upon their export sales and profits. Depending upon your volume of export, the amount of savings can be substantial.
Energy Efficiency Commercial Buildings: Got a building? If you have purchased, constructed or renovated a building between January 1, 2006 and now, you may be eligible for up to $1.80 per square foot deduction if your building meets certain ASHRAE standards.
Cost Segregation: Got a building (hear that somewhere before?)? If you have purchased, constructed, or renovated a building in the last five years, a cost segregation study could help improve your cash flow today by accelerating depreciation on your building. It’s always better to have the cash in your hand to fund your business growth today than in the government’s hands (in my humble opinion).
While there are so many that we won’t cover today, these are some of the business incentives (say it with me….freebies) that are available to US businesses. If you review the above list and aren’t sure if you qualify, feel free to give us a call to discuss. If you or your client don’t meet the qualifications, we’ll let you know. At a minimum, you should understand whether or not you are paying more tax than you need to legally.
Randy Eickhoff, CPA is President of Acena Consulting. With more than 20 years of tax and consulting experience, Randy focused on helping companies successfully document and secure tax incentives throughout the US. He has been a long-time speaker nationally as well as conducted numerous training sessions on R&D tax credits and other US tax incentives.