“Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.”
Judge Learned Hand in Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947)
TAXES are a necessary evil. We can’t have a functioning government, protection, public services and infrastructure locally as well as nationally without them. However, they eat into our cash flow, our profits and sometimes, our success. Judge Hand’s eloquence on the subject makes it clear we have the right to avoid taxes -- but not to evade them. We must have them, but we don’t have to pay any more than the law requires.
State and Federal policies offer tax breaks as incentives to encourage certain behaviors from hiring specific people (ex-felons, SNAP recipients, veterans, etc.) to investing in real estate or certain business activities.
Large corporations often have sharp-eyed CPAs and Attorneys whose job it is to review proposals and even policies for “tax efficiency” to make sure the company is taking maximum advantage of the Tax Code and its regulations. Even then, they may miss opportunities because their focus is so myopic. They tend to watch areas they know produced savings in the past and ignore other possibilities.
Smaller companies are mostly unaware of the Tax Code advantages or think they are too expensive to collect. Sheer ignorance is enhanced by the fact that most entrepreneurs, professionals, and business owners are consumed by day-to-day operations. In fact, they may well scoff at pursuing a possible tax credit as “unseemly” (strange, since it’s the U.S. Government’s policy to offer such incentives) or a ploy to garner ‘inside’ information.
Only when the savings actually reach the bottom line do most businessmen applaud. Of course, tax credits* and government programs are notoriously temporal – they expire if not timely claimed. Also, Congress is known to be fickle, even when it comes to “permanent” tax benefits.
As business consultants, we seek savings and credits on behalf of our clients. We are paid on a contingency basis -- only when and if monies are secured for the client. If the expected gains are somehow not available, we will have conducted the investigation at our expense, no charge to the client. Of course, we try to make sure that seldom happens!
Some cases in point . . .
A small manufacturer of plastic containers: Hiring credits projected at $23,500 this year, having missed out on similar amounts in prior years; property tax reduction of $34,000; property tax credits of $162,000; research & development credits of $64,000; rebates of $22,350 and $14,000 from ongoing services, again amounts that could have been collected in prior years.
A two-person Dental Practice: $180,000 in unclaimed tax incentives; investigating potential enhanced supplemental retirement benefits.
A small auto dealer: Property tax incentives including tax reductions totaling $320,000; hiring credits and credit clearing rebates adding up to $58,000 the first year. Miscellaneous savings produced another $9,700 to the bottom line.
Mom & Pop restaurant: $87,000 in total benefits, $19,000 of which should be recurring annually.
Not all businesses will qualify for tax credits or other savings, but most businesses, large or small, should take the time to check whether such savings are available, at no cost or risk: nothing ventured, nothing gained!
A CPA could not get over the fact that we performed professional studies, found savings, and created documentation to support those claims before we were paid. He stated he had avoided recommending tax incentive studies as their cost could equal or even exceed the benefit to his clients. He found the guarantee that our fees are limited to a percentage of the benefit “a breath of fresh air.”
While taxes are often seen as a burden, we are privileged to pay our share based almost exclusively on how much we earn. That is fair. The incentive is to earn more and thus, pay more. When Uncle Sam benevolently offers us a discount or a rebate for spending our dollars in a certain way, why wouldn’t we want to earn that reward? Burden, Opportunity, Incentive? Yes.
We help our clients find money they are currently losing unknowingly and unnecessarily.
Judge Hand would approve.
*: Tax Credits offset taxes due: If a taxpayer is in the 25% bracket and receives a tax credit of $25,000, that credit offsets the tax on $100,000 of taxable income. Most tax credits can be carried forward to future tax years; some can also be claimed for previous tax years, producing a refund.
Originally published in the August 2019 Morning Star Business Report