Companies of any size need to keep in mind certain regulations related to taxation. While it is mostly looked upon as a business expense, there are advantages that companies can reap from taxation as well. In fact, an optimal business strategy is initiated based not only on product/service/market knowledge, but also through the application of tax based incentives.
The existence of different tax brackets means financial leverage is be quite diverse in large and small businesses. Tax matters are linked to corporate governance, and there is a need for a set of processes and policies to manage the impact.
This post targets two important stakeholders: businesses (large and small) and employees. More specifically, it will give an insight on how the hiring process itself can be a tax credit for the business.
Avenues to gain tax credits
Tax credits allow large scale companies to obtain fiscal incentives through simple maneuvers. A good example of this is the ‘Work Opportunity Tax Credits’ (WOTC), which allows businesses specifically hiring in areas where there are high unemployment rates or there are special needs. Such hiring procedures can bring down federal tax liabilities by $2,400 per qualified hire.
Another related example is of the Federal Empowerment Zone (FEZ), which is another incentive to hire staff that lives or works within a FEZ. Each state has their own dedicated FEZ, and the credit amount gained is 20% of the qualified zone wages paid. This incentive works for both large and small businesses that are targeting economically distressed communities within U.S.
ADP business tax credits and other similar tax service procurements are a step in the right direction and are important to explore. This is combined with geographic zone eligibility (a mapping technique) can provide tailor made solutions for all businesses. Outsourced solutions can also serve the business well and save on internal workflow costs.
The notion of enterprise zone credit is popular within tax solutions. These are designated areas within states where incentives are provided. The most interesting element is that enterprise zone benefits are also applicable to employees. Employees that work within enterprise zone are liable for their indigenous tax refunds (independent of the employer’s benefit).
The California’s Enterprise Zone program has been taken as an often quoted model of generating tax credits and also creating jobs within small and large businesses.
When it comes to making new products, large companies in particular should look at the impact of R&D tax incentives by the state. This is a much better option than resorting to funding from institutions or procuring hefty loans. R&D tax credits facilitate the production of innovative product and are an ideal tool for cutting down costs.
As per a government study, corporate tax expenditures are the money that is available to businesses in the form of tax incentives and credits. In 2011, this expenditure amounted to $158.8 billion. This figure is indicative of the huge amount that can be obtained in the form of tax credits.
The information provided above clearly gives an overview of taxation systems and how they can impact employability and profit maximization within businesses. Employees who are working in incentive driven zones or businesses should look at the state refunds that they can garner to benefit from positive cash flows.