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3 Strategies to Lower Your Effective Tax Rate

Carlo R. Ferri, CPA
Carlo R. Ferri, CPA Director, Tax Strategies, Construction Industry Group Co-Leader

3 strategies to lower your effective tax rate

Many companies experienced significantly lower sales volumes during the economic downturn of the last five years. And many had to cut costs and reduce headcount or operations as a means of survival during those tough times. For the limited opportunities that remained available, profit margins were thin as growth remained stagnant.

A lot has changed since then. Although some uncertainty still exists, there are positive signs of an improving economy and housing market. The stock market has rebounded and is riding an all-time high. Consumer confidence, while still sluggish, continues to show optimism. Many companies are seeing promising sales growth as opportunities continue to emerge.

As a result, company profits are on the upswing. However, we are operating in an environment in which individual federal and state tax rates can be as high as 50 percent. Here are three tax strategies to consider that can help combat this situation and lower your effective tax rate.

1. Tax Breaks for Exporters

As our global business environment continues to evolve, Congress has created tax incentives to stimulate the export of goods outside the U.S. These incentives provide a reduced tax rate of almost 16 percent on gross profits earned on export sales. This translates to permanent tax savings for these businesses, helping them compete more effectively with their global counterparts.

2. Incentives for Products Made in the U.S.

The federal government provides tax breaks for companies that manufacture, construct, design, grow, or extract their goods in the U.S. This is an incentive designed to encourage job growth and production in the U.S. and it can result in a reduced effective tax rate of 3.5 percent for companies and their shareholders.

3. Tax Opportunities to Encourage Research Spending

Concerned that declining research spending could adversely affect U.S. economic growth, productivity gains, and competiveness within global markets, Congress introduced the Research and Development Credit to encourage domestic investment. Companies that devote significant time and resources to improving product design and processes as well as new product development can benefit from this credit. Originally geared toward the science and technology fields, the R&D credit has evolved to benefit other industries where these qualifying activities take place.

Companies that take advantage of these opportunities can significantly lower their effective tax rates each year. This in turn will help them compete more effectively in the global economy and reinvest more funds in the company for future infrastructure and capital asset purchases.

Carlo R. Ferri can be reached at Email or 215.441.4600.

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Carlo R. Ferri, CPA

Carlo R. Ferri, CPA

Director, Tax Strategies, Construction Industry Group Co-Leader

Construction Specialist, Business Tax Specialist, Individual Tax Specialist

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