Starting a business is not a piece of cake. It takes a lot of struggle and hard work to establish and nurture a company. Over time, you must have encountered tremendous obstacles to ensure business stability and gradual growth. Throughout the year, you work so hard, and there is an expected profit that you are excited to earn every year. But taxes do not let you stay happy for long, and with a heavy heart, you pay heavy taxes.
Business growth and expansion sound so enchanting for a business owner, but everything come at a price. Unfortunately, the corporate language calls this price ‘taxes.’ Being the owner of an organization, you must be well aware of the different kinds of taxation laws and the most horrifying corporate tax.
In simple words, corporate tax is an amount the government levies on a firm’s profits. According to the income statement, you pay taxes on the amount left after deducting expenses from gross profit. These taxes are an income of the country and used by the authorities for the welfare of the nation. Governments all over the world fix a percentage for taxes. For example, the US has a flat 35 percent tax on profit, as declared by Donald Trump in 2017.
Amidst the downsides, there are positive sides to taxation systems too. Businesses can enjoy numerous benefits — all it needs is a little digging. The taxes are rising globally, and for companies to fully understand the benefits and tax shields, employees with tax law careers are essential now. Here are a few merits of the system that you must know.
Stress-free Equipment Purchase
Purchasing machines for the production department is not simple at all. First, you invest in the asset, and then, the depreciation kills you for the next couple of years. However, if you have thoroughly studied the Tax Cuts and Job Act (TCJA), you must know that section 179 has made equipment purchase easier. You can now write-off equipment of over $500,000 right away. It allows better tax planning in the long-run. Moreover, this bonus depreciation allows you to write-off a 50 percent depreciation for the first year. Over five to seven years, the amount reduces to 20 percent.
International Expansion Is Simpler
Some countries have extraordinary heavy taxes that take away most of the portion of profits from the owners. To ensure none of the businesses suffer mega losses, the TCJA has made operations simpler for globally operating firms. If you are a C Corporation, think about growing your business into another state, and the liability of income tax decreases. Every country has a different nexus, but the majority of states allocate tax based on the in-state property, sales, and payroll. Therefore, you can save taxes if you run operations in different countries.
Better Research and Development
Not every research has to end in a new product or service to enjoy tax credit. You can enjoy tax credit on the qualified services you are using, equipment used for the research, and 65 percent of the test implementations your research undergoes. The R&D Tax Credit is lucrative as you can save a dollar on dollar tax.
Bye-bye to the Building Problems
Most organizations have reported that they pay a hefty tax on the building. Have you incurred a significant investment in the building purchase or construction too? You can save yourself from the same problem in the future with Cost Segregation Depreciation. Depreciation on the entire building can be spread over 39 years, whereas the components can depreciate over lesser years. You can also identify parts of the building like electrical components as current assets through cost segregation depreciation and save significant amounts in the name of taxes.
You Can Increase Production Now
Domestic Production Activities Depreciation (DPAD) allows you to enjoy deductions on production activities like manufacturing, growing, and extracting. There is only a nine percent deduction on the qualified income. For example, if the qualified income of your business is $100,000, the tax will be only $9000.
Tax Saving on Foreign Business
The Interest Charge — Domestic International Sales Corporation allows companies to cite a portion of the sales as commission to IC-DISC, and the shareholders are only liable to pay tax on the dividend income, and that too on the preferential rate. Only export companies are allowed to benefit from this system.
Transfer pricing is another benefit that provides substantial tax savings by allowing the sale of a product from one subsidiary to another.
Embrace the Market Competition
The taxation system is full of benefits, and the most significant advantage is dodging the market competition. Organizations can use different sections of TCJA in their favor and get a competitive edge. It will allow them to boost sales, which will result in higher profits for businesses — the more profit each company earns, the better for the entire economy because GDP can significantly increase.
The taxation system is never appreciated by business owners, especially when the sales graph does not go up. 2020 has been a roller coaster for firms, and currently, everyone is worried about the fluctuating market trends. However, the taxation system has numerous benefits that you can achieve. Hire legal advisors or tax law experts to get the best opinion on the taxation system. It is not all about the hefty payments you have to make; the laws have several advantages for you. All you need is to figure them out.