Wherever you find a set a rules, you’re sure to find a loophole. The most sought after of these almost mythical treasures are tax loopholes. Most business owners want to find ways to reduce their payments to Uncle Sam, but loopholes aren’t always the best option.
In this article, you’ll learn about tax loopholes and other tools that can reduce your tax payments.
What are Tax Loopholes?
Relay describes these tax manipulations in the following:
Tax loopholes are legal ways that tax laws and tax codes are used to reduce your tax burden. These laws’ shortcomings or provisions can help cut the amount you owe on your small business tax bill and/or reduce your tax liability.
RelayFi.com, Tax Loopholes for Small Businesses in 2024
As stated, loopholes are a legal means to circumvent certain laws or requirements due to either short sighted or poorly written definitions. There are very good reasons for businesses to look for loopholes too. Namely, the amount of taxes a business owner has to pay.
Of course, finding a tax loophole can be like searching for a needle in a haystack. While it may exist, it may not be worth your time to search for it. Thankfully, there are more clear cut ways to lower your tax bill.
What Other Financial Tools Reduce Business Taxes?
Fundera reports that, on average, a small business pays 19.8% of its gross income in taxes, so it’s beneficial to research other cost saving measures. While not technically a tax loophole, credits and deductions are also extremely helpful at lowering Uncle Sam’s take.
Now, when it comes to tax credits vs deductions, which are best suited for your business?
You’ll most likely be able to use a variety of deductions and credits. Of course, you should discuss all your options with your tax accountant. For example, if your company builds robots or is in the pharmaceutical industry, R&D tax credits could be a great aid for you.
Let’s take a deeper look at these credits.
R&D Tax Credits
These tax credits are designed specifically for companies that invest in new product experimentation and development. These credits benefit a wide range of industries.
For example, while there is a swath of agriculture tax credits for farmers, R&D tax credits are available to those in the agricultural industry too.
Farmers who experiment with new technologies to track the health of dairy cows or invest in tools to reduce their environmental impact could be eligible for an R&D tax credit.
The Federal R&D tax credit is worth 7-10% of a business’ qualified research expenditures, and many states offer a similar program too. When combining a state and Federal R&D tax credit, you could be in possession of some large savings.
Tax Loopholes for R&D Companies
Tax loopholes are a means to circumvent your required tax payment, but there are easier ways to reduce your tax bill. Talk to your tax accountant about credits and deductions that could benefit your business.
R&D tax credits are just one type of credit that R&D companies can take advantage of to reduce costs. Learn more about these credits with a Research and Development Tax Credit Team today.