This article was updated on June 12, 2018.
Tax reduction, such as through maximizing tax credits, can significantly improve a company's bottom line. A strategically minded CFO, however, will look beyond tax breaks.
Here are four tips to help you get the most benefits out of tax credits for which your business may be eligible:
1. Determine if your organization qualifies for any research and development (R&D) tax credits. According to CFO Magazine, taxpayers claim almost $10 billion in R&D tax credits every year in the United States. The Protecting Americans from Tax Hikes Acts of 2015 made the R & D tax credit permanent. Likely to be eligible are firms with product development personnel on staff, such as engineers and scientists. The law also extends the credit to smaller firms, including LLC and S-Corp entities. Tax credits for R & D are not unique to the United States. In fact, around 30 countries have similar incentives.
2. Connect expansion or growth planning, such as through acquisitions or new facilities, to guidance about potential tax benefits. For instance, a firm facing higher rents in Chevy Chase, Maryland might consider relocating to areas where the firm can receive payroll tax benefits offered by the state in Maryland's "revitalization areas."
3. Maximizing tax credits for one-off, special events can help reap major rewards. For example, the relocation of General Electric headquarters from suburban Connecticut to downtown Boston was reportedly driven in part by rising taxes in CT. It didn't hurt that, according to a Bloomberg Business report, a relocation package from Massachusetts included as much as $25 million in property tax relief and another $120 million in other incentives.
4. Consult an innovative tax specialist who fully understands your industry, regulatory environment and business environment. You want someone who thinks outside the box and will help find ways to offset your tax burden, for example, by funding scholarships in Arizona.
In addition to its impact on this your 10-K filing and quarterly investor reports, it may be beneficial to look to the broader process of decision-making within the organization. If the tax credit is part of an overall initiative — say, an acquisition or a new retail market — this can be an opportunity for a strategic relationship with the line of business managers.
While these tips can help many organizations, they don't apply to everyone. It's important to keep in mind that multinationals face special challenges and opportunities. Firms with no international exposure will be focused solely on U.S. federal, state and local tax credit possibilities.
One-off employment incentives should be connected to overall workforce management. Work with the CHRO to see whether employment tax credits from government incentives will be sustainable. Training and retraining the workforce can add cost, but training tax credits can help offset these.
Maximizing tax credits is one way a CFO can stand tall in the boardroom. But above all, becoming a key strategic adviser in corporate decision-making can sustainably benefit your business.