December 05, 2008
The down economy and credit crunch will force many businesses to look for stategies that reduce expenses and raise cash. Managing your tax burden is one area where appropriate planning and action can put much-needed cash back in your pocket.
Your best approach depends on your industry and the structure of your business. The following tax tips are intended to be general observations and to highlight ideas that may be helpful. Facts and circumstances vary, so check with Grant Thornton for help in determining how these planning opportunities may apply in your situation.
Stimuluse legislation and capital expenses
- Are you timing investments to take full advantage of the 2008 economic stimulus legislation?
- Time is running out to take advantage of the bonus depreciation provided in this year's economic stimulus legislation. Many types of capital investment will be eligible for 50 percent bonus depreciation if the investments are made and the property placed in service in 2008. You can expense half of the cost of certain capital assets, qualified leasehold improvements and other items in the first year of their lives. The stimulus legislation also temporarily increased the amount of depreciable property that can be expensed under IRC Section 179. Anohter recently enacted tax bill extended 15-year deperciation rules for retail, leasehold and restaurant improvements.
- Are you confident that you have taken full advantage of opportunities to accelerate expenses and defer taxable income?
- An accounting methods review can reveal sound opportunities to defer the recognition of revenue or accelerate expense deductions. While often overlooked in a robust economy, such a review often results in meaningful and immediate benefits. A change in accounting method sometimes allows benefits that would have been realized in prior years to be recognized in the year the change is implemented. A review typically focuses on areas such as:
- Cash vs. accrual method of accounting;
- Deferred recognition of income related to advanced payments;
- Deferred recognition of disputed income; and
- Accelerated deduction for liabilities and expenditures, bad debts, taxes, package design costs, computer software expenditures, bad debts, insurance, long-term service cotnracts and more.
Nonincome tax planning
- Are you taking full advantage of opportunities to reduce above-the-line nonincome tax burdens, such as sales and use tax and property tax?
- Consider whether your business could use a separate leasing or procurement entity to own and lease fixed assets. These entities, designed to realize efficiencies in asset managemnet, may significantly reduce sales and use tax.
- Have your property taxes reviewed to determine whether all real and intangible property is excluded from your personal property tax base.
- Challenge property tax valuations on your real property, where appropriate.
- Depending on your industry, look at other nonincome planning opportunities, including excise taxes.
- Are you maintaining an active research and development program?
- Many companies miss opportunities to claim the federal credit for research and development expenses because they don't document or categorize expenses correctly. The research credit was just extended through 2009; an R&D study can help you substantiate and claim the full allowable credit.
- Is your company taking full advantage of tax credits offered by the federal as well as state and local governments?
- Don't forget state and local level credits and incentives. There are a wide range of programs available, including R&D and investment tax credits, as well as incentives based on performing business activities in economically disadvanteged zones.
International tax opportunities
- Have you reexamined your tax strategy in light of varying profit outlooks in the countries where you have operations?
- For companies experiencing a new mix of taxes and losses in various countries, a fresh look at the foreign tax credit may result in significant savings.
- Are you experiencing an overall loss in your foreign operations?
- In the case of an overall foreign loss, foreign source income planning is required.
- Dividend planning can optimize the foreign tax credit where there are changes in pockets of gains and losses in various countries.
- New liberalized IRS rules will allow U.S. taxpayers to borrow from their controlled foreign corporations for a longer period without triggering tax consequences.
- Reassess transfer pricing on a gloabl basis in light of changes to the general economic outlook.
Review accounts for interest savings
- Have you considered an IRS interest review?
- It's possible to generate a refund by reviewing your tax accounts maintained by IRS to look for errors in calculating interest and penalties. In addition to looking at each year separately, an overall review can identify interest netting opportunities often overlooked.
Additional tax planning opportunities
- Have you explored other ways to reduce taxes or accelerate refunds?
- Refine income projections as tightly as possible to avoid overpayment of estimated taxes.
- File early to accelerate expected refunds; delay filing when taxes are owed (but file in time to avoid interest and penalties, of course.)
- If you have any carrybacks, file Form 1139 early and have it reviewed by a tax controversy expert to identify any items that may delay processing the refund.
- For companies that are growing geographically, review your structures with an eye towards taxes. This applies to both state and local taxes and companies with cross-border operations.
- Let the tax collector share your pain. Consider disposing of inventroy you aren't going to sell and writing of debts you aren't going to collect to make them deductible now, not later.
Tax profesional standards statement
This document supports Grant Thornton LLP's marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the subject of this document we encourage you to contact us or an independent tax advisor to discuss the potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this document may be considered to contain written tax advice, any written advice contained in, forwarded with, or attached to this document is not intended by Grant Thornton to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.