How Do Tax Incentives Work?
What are Tax Incentives?
Tax incentives are designed to increase a firm’s profitability by decreasing its overall tax burden. There are several forms of tax incentives:
Tax exemptions:
This tax incentive means firms are officially permitted to NOT pay certain liabilities. Your accountant uses these to plan and prepare your taxes each year. The IRS offers a long constantly evolving list of exemptions on their website. Businesses can appreciate that exemptions lower the cost of doing business and increase the return on investment. Governments employ the exemption tool because it increases the potential for new jobs and investment in economic development.
Tax Reductions:
The amount of taxes a firm is required to pay is partially offset. Unlike tax exemptions reductions still require the firm pay a portion of the liability. There are still savings the business can enjoy.
Tax Credits are More Flexible:
Tax credits are subtraction of a portion of a firm’s tax obligation. Where deductions are reduction in taxable income, credits are direct reduction of taxes owed. Credits can often be carried forward to subsequent tax years. Specific types of tax credits are offered to businesses in specific locations, classifications or industries. They can also be implemented to mitigate economic circumstances, like the popular pandemic induced Earned Income tax credit. Tax credits are more favorable to businesses because they reduce the actual tax owed, not the amount of taxable income. Tax credits can be nonrefundable, refundable or partially refundable.
If a tax credit is nonrefundable, it can reduce the tax liability to zero, but cannot furnish you with a tax refund. The refundable tax credit is paid out in full, even if that creates cash back to the taxpayer. The taxpayer, regardless of the income or tax liability, is entitled to the entire amount of the credit.
Tax Refunds and Rebates:
The firm must pay the full liability owed, but will receive a refund of part of the taxes paid. Government tax rebates are designed to stimulate a flagging economy or to promote certain types of purchases. A tax rebate is often unrelated to deductions and credits claimed. Recent Stimulus payments issued to individual taxpayers are meant to help bolster an economy damaged by the pandemic shutdowns. Examples of tax rebates include renewable energy rebates, hybrid vehicle rebates, medical plan rebates and more.
Americore found when a balance of rebate and credits are leveraged as part of business planning, business realize higher ROIs. Americore uses programs called Blue Apple because they are so rarely found and used. Blue Apple is not risky or unethical, in fact many of the programs used are government based. They were created to develop businesses and economies in certain industries, geo locations or demographics. When effectively use, Blue Apple incentive programs improve returns on investments, and open opportunities for growth or retirement.
AmeriCore was formed by dedicated professionals in the Finance and Financial Services industries with a unique outlook on problem solving. We use our relationships with hedge fund managers, CPA’s, tax attorneys, banks and other professional organizations to enhance our business advisory services. We should have a conversation. You’ll be glad we did.