Tag: R&D

Tax Blueprint As Part of American Jobs Plan Unveiled

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The Biden administration on March 31, 2021, unveiled a jobs and infrastructure plan, the American Jobs Plan, to address the nation’s pressing infrastructure needs. The plan calls for about $2 trillion in spending over eight years. To pay for these expenditures, the plan also includes a proposed overhaul of the corporate tax system that would increase the corporate tax rate and the global minimum tax, eliminate federal tax benefits for fossil fuel companies, and strengthen enforcement against corporations.

While the proposed spending would be spread out over eight years, the tax increases would continue for 15 years.
 

Proposed Tax Measures The White House released a Fact Sheet that lists the proposed tax measures under the plan:

Corporate Tax Rate — The Biden plan would increase the corporate tax rate from 21% to 28%. The rate had been reduced by the Trump administration from 35% to the current rate of 21%.

Global Intangible Low-Taxed Income (GILTI) Modifications – President Biden’s proposal would increase the effective rate on GILTI for U.S. corporations to 21% and calculate GILTI on a country-by-country basis. It also would eliminate the rule that allows U.S. companies to reduce their GILTI inclusion by 10 percent of their average adjusted basis of qualified business asset investments.

Encourage Other Countries to Adopt a Minimum Tax Regime – The plan proposes to encourage other countries to adopt strong minimum taxes on corporations, and deny deductions to foreign corporations on payments that could allow them to strip profits out of the U.S. if they are based in a country that does not adopt a strong minimum tax.

Inversions – In addition to enacting reforms that would remove incentives for U.S corporations to invert, President Biden’s proposal would make the inversion process more difficult.

Offshoring/Onshoring Jobs –President Biden’s reform proposal would deny companies deductions generated by offshoring jobs and would also propose a tax credit to support the onshoring of jobs.

Eliminate the Foreign Derived Intangible Income (FDII) deduction and Invest in R&D Incentives – The Biden plan proposes the complete elimination of the FDII deduction, which was introduced as part of the Tax Cuts and Jobs Act. The revenue collected as a result of the repeal of the FDII deduction would be used to expand other R&D investment incentives.

Minimum Tax on Book Income – The plan  includes a proposed 15 percent minimum tax on U.S. corporations’ book income, which would apply only “to the very largest corporations,” according to the Fact Sheet.

Tax Preferences for Fossil Fuels – Biden’s plan would eliminate all subsidies, loopholes, and special foreign tax credits for the fossil fuel industry.

Enforcement – The plan calls for increased investment in enforcement so that the Internal Revenue Service has the necessary resources to effectively enforce the tax laws.

Tax Relief Opportunities That Could Enhance Your Operations

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Although companies that have managed to survive up to this point will have overcome immediate safety and cashflow problems, they still face an uncertain future. No one can predict how long the downturn will last, whether the world will revert into crisis mode or whether the path towards long-term recovery has begun. 

Despite the persistent uncertainty, savvy companies can position themselves to outperform their competitors by capitalizing on market shifts and strengthening their core business models. To do so, liquidity will continue to be at a premium, but many companies at this stage should be able to spend a bit in order to reap considerable returns. The tax function is poised to help them do just that.

After conquering tax solutions that are within reach, it’s time to consider low-risk strategies that will plant the seed for future growth.

Consider which tax strategies can help you find a competitive edge, including: 

  • Uncovering missed opportunities for savings: Look for potential projects that, though they may require an upfront investment of time and capital, have the potential to uncover significant savings opportunities.
    • R&D tax credit studies: The money companies spend on technology and innovation can offset payroll and income taxes via R&D tax credits. The credits benefit a broad range of companies across industries, yet many businesses are leaving money on the table.
    • Property tax assessments appeals: In the wake of the COVID-19 pandemic, some jurisdictions are reevaluating their property tax processes via disaster relief and conducting assessments at an earlier date. Property tax appeals can generate cash savings by challenging assessed values and reducing property tax liabilities.
    • Cost segregation studies: Cost segregation studies can help owners of commercial or residential buildings increase cash flow by accelerating federal tax depreciation of construction-related assets. Depending on the type of building and cost, the increased cash-flow and time-value benefits are often significant.
  • Advising on business decisions: In this phase, it’s likely that your C-suite is beginning to think about what’s next. Tax professionals should aim to provide strategic insights into the tax implications of these critical business decisions, including supply chain shifts, transactions, restructuring and more.
  • Maintaining compliance: If your business secured any federal funding in the early stages of the pandemic, those funds likely came with certain tax and financial reporting compliance measures attached. Work with the finance and accounting department to ensure that these benefits don’t result in unexpected penalties and costs. You should also aim to secure forgiveness for any forgivable loans. 
  • Continue to grow liquidity: Cash is still key to navigating an uncertain road ahead. Continue to leverage liquidity-generating tactics, such as:
    • Evaluating accounting methods and making changes, if necessary, to defer income tax and increase cash flow.
    • Reviewing transfer pricing strategies to identify opportunities to optimize cash flow.
    • Pursuing a tax deduction through charitable donations.
    • Maximizing state NOLs through elections, structural changes, intercompany transactions and triggering unrealized gains.

Businesses that effectively use tax strategies to focus on seizing the strategic opportunities they do have will be able to make the most of tough conditions and emerge as market leaders.