As an accountants firm based in New York and London, we are expert in providing expert tax advice on how US companies can minimize against tax and maximize on profit.
We have put together a summary of just some of the major tax incentives that Congress has out in to play to encourage certain behaviors by US Congress.
DPAD- Reduce taxable income by 9% of income from domestic production
In an effort to encourage companies to keep their manufacturing processes within the U.S., Congress introduced the DPAD (Domestic Production Activities Deduction (DPAD). This is where U.S. corporations can reduce their income by 9% of their income from domestic production. This provision was created in response to many U.S. businesses outsourcing their production in cheaper overseas facilities.
Foreign tax Incentives- not paying taxes on profits gained overseas
Multination companies are not required to pay U.S. taxes on profits earned overseas until the earnings are brought into the U.S. This has brought an incentive to keep cash overseas and pay taxes at a preferential rate for U.S. companies. Although the passing introduced into US tax law during December 2017 would theoretically reduce the incentive for U.S. companies to bring their profit to the U.S. for taxation; the law works to encourage businesses to trade worldwide.
State and Local Bonds- Exempt state and municipal bonds from federal taxation
Congress introduced a policy that allowed certain state and municipal bonds to be free from federal taxation. This was introduced to encourage investment in state governments and local communities. U.S. corporations (and individuals) are therefore incentivized to purchase these types of bonds, of which funds are typically invested into programs that benefit local communities, unlike federal or corporate bonds.
Environmental tax credits- Tax credits to companies with low emissions
In an effort to lower the emissions of companies within the U.S, the EPA introduced a system that allowed tax credits to companies working to reduce their emissions. The main credit within this environmental tax incentive is called Emission Reduction Credits (ERCs).
Research Credits- In order to incentivize research and development, a research credit is available to companies with qualified research expenditure (QRE). A QRE involves developing products, manufacturing processes or software within the U.S.