Tax Planning Stages and objectives - How to do Better tax Planning.

For all Controllers who are intent about reducing their corporation’s tax trouble, there are five primary goals relating to their tax strategies, all of which involve increasing the quantity of differences between the book as well as tax records, so that reportable earnings for tax purposes is lowered. The five items are:

Should Accelerate Tax deductions – By recognizing expenses sooner, one can force expenses into the current reporting year that would likely otherwise be deferred. The principal deduction acceleration involves depreciation, that a company typically uses this modified accelerated cost recovery program (MACRS), an accelerated depreciation strategy acceptable for tax reporting reasons, and straight-line depreciation, which ends in a higher level of reported earnings for other purposes.

Avail all available tax credits – A credit ends in a permanent reduction in taxes, and so is highly attractive. Unfortunately, credits are increasingly difficult to find, though one might qualify for your research and experimental tax credit score, which is available to those companies that contain increased their research activities within the previous year. The only type of expense that qualifies for this credit is what is undertaken to discover information which is technical in nature, and its application need to be intended for use in making a new or improved business component for your taxpayer. Also, all of the investigation activities must be elements of your process of experimentation relating to some new or improved function, or which increase the current level of performance, consistency, or quality. A credit cannot be used for research conducted after the start of commercial production, for the customization of your product for a specific purchaser, the duplication of an active process or product, or for research necessary for some types of software for being used internally. There are more tax credits at the local level, where these are offered to those businesses prepared to operate in economic development areas, or as part of special relocation deals (normally only available to larger companies).

Avoid nonallowable Expenditure– There are many expenses, most notably meals as well as entertainment, that are completely or at least partially not allowed for reasons of computing taxable income. A key company strategy is to reduce these kind of expenses to the bare minimum, thereby avoiding any lost benefits from nonallowable expenses.

Substantially Increase tax deferrals – There are many of situations in which taxes may be deferred, such as when payments for acquisitions are designed in stock or when profits is deferred until all related services happen to be performed. This can shift a large section of the tax liability into the future, where the time value of money ends in a smaller present value of the tax liability than would otherwise be the case.
Obtain tax-exempt income – The Controller should look into investing excess funds in city and county bonds, which are exempt from both federal taxes and the income taxes of the state in which they had been issued. The downside of this method is that the return on municipal bonds is less than the return on other types of investment, due to their built in tax savings.

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