As we move past Sept. 15, now is a prime time to explore additional tax saving strategies of all shapes and sizes. McGuire Sponsel would like to take this opportunity to discuss how we can partner with your firm to maximize clients’ cash flow by implementing the following planning ideas:
The fourth quarter is the optimal time to review the benefits of establishing an IC-DISC with your clients that export. This opportunity is available to any U.S.-based company that exports goods that are manufactured, produced, grown or extracted in the U.S. Since the IC-DISC is not retroactive, it is important to initiate discussions now in order to incorporate by the end of the year and maximize benefit for 2018. By utilizing an IC-DISC, a U.S.-based company can reduce its federal tax liability by converting its export sales income, which is taxable at ordinary income rates, into qualified dividends, taxed at capital gains rates. Generally, this creates an effective tax savings of 15 percent – 18 percent.
For those exporters who have already formed an IC-DISC, this is a crucial time to evaluate the calculation methodology. Many companies using the 50 percent of export net income or 4 percent of gross export revenue simple calculation methods may be missing out on substantial tax savings. While McGuire Sponsel evaluates all potential commission calculation alternatives, we typically utilize a transaction by transaction (TxT) approach to maximize a company’s allowable commission. The TxT approach optimizes the commission by examining and testing each sales transaction to achieve maximum tax savings.
Credits and Incentives
A year-end discussion with clients concerning growth plans can prove very valuable. Whether your client is relocating or simply looking to expand, there may be available state and local incentive opportunities. In the realm of state and local tax incentives and economic development, a business must plan and negotiate before any action takes place.
Noteworthy business decisions that can lead to economic incentives include 1) expanding existing facilities or expanding into a new state; 2) leasing, buying or building an office, manufacturing space or warehouse; 3) creating new jobs; 4) purchasing equipment or 5) acquiring another business.
Knowing the impact of economic incentives and credits can be an important factor in location decisions and can bring a substantial amount of money into a business. A conversation with the McGuire Sponsel team will help you pre-qualify and value economic incentives – ensuring that no opportunities are missed.
Another tax-saving strategy that is worth exploring is a cost segregation study. Many of the traditional thresholds that would trigger a study in the past have been modified as a result of the PATH Act. The following transactions could result in significant tax savings for your clients:
- Building purchase with a depreciable basis beginning at $750,000.
- Newly constructed building with a depreciable basis beginning at $500,000.
- Interior build-outs/renovations beginning at $150,000.
- Retroactive studies that would require a 3115 filing
- With tax rates likely set to decrease, now is an ideal time to maximize the value of depreciation deductions for 2017. This is a prime opportunity to discuss these opportunities and tax saving strategies.
R&D Tax Credits
A discussion should be initiated if your client conducts activities related to new or improved product and process development and was previously unable to utilize the R&D Tax Credit due to tax limitations. If your client is eligible for the payroll tax credit in 2016 but has already filed their tax return, the IRS is allowing the tax return to be amended in order to claim the payroll tax credit. As we look toward the end of the year it is important to note that in order to take advantage of this provision, the tax return must be amended by Dec. 31, 2017.
Taxpayers who are eligible to take advantage of the R&D Tax Credit may be able to offset their AMT tax liability if they are an eligible small business, which is defined as a non-publically traded corporation, a partnership, or a sole proprietorship that does not exceed $50 million in revenue over the prior three years. In addition, companies that have less than $5 million in gross receipts for the current year and no gross receipts for any tax years preceding the five tax year period ending with the current tax year may elect to claim up to $250,000 of the R&D Tax Credit toward offsetting employer’s payroll tax liabilities.
Between now and year’s end McGuire Sponsel will be visiting many firms to educate and brainstorm ways to assist companies with implementing the appropriate tax planning tools. As always, never hesitate to contact us to discuss how we can serve you or if you have any questions about these year-end tax saving strategies.