New income tax credits are available to support overseas companies that qualify to operate in the world’s largest economy.
For any business planning to begin or expand its operations in the United States, tax credits play an important role in reducing the impact of taxation on its bottom line.
There are now three federal income tax credits available to qualify foreign companies hoping to establish or expand their presence in the U.S. market.
While some of these credits had originally expired on 31 December 2017, on 20 December last year, President Trump signed the Taxpayer Certainty and Disaster Tax Relief Act of 2019. Under this new legislation numerous credits and deductions were extended into 2020, including R&D tax credit and Work Opportunity tax credit (WOTC).
R&D tax credit offers incentives to companies in the U.S. to invest in developing new or improved products, manufacturing processes, software, techniques, inventions, and formulas. If eligible, a company can generate approximately 4.5% to 6% in an annual federal income R&D tax credit based on qualifying expenditures.
WOTC is a point-of-hire credit intended to help employers offset the cost of new employees. When a company hires people from targeted categories – for example, long-term unemployment recipients, qualified veterans, qualified ex-felons, and certain rural residents – and employs them for at least 120 hours in their first 12 months, it can reduce federal tax liability by up to USD9,600 per person, and offset its alternative minimum tax.
Credit for energy efficiency
Lastly, Energy Efficient Home tax credit is equal to USD2,000 per unit for newly constructed or qualified owner-occupied or rental housing units that meet certain energy-savings standards, and must be claimed by the unit owner in the year in which the unit is occupied.
A dwelling unit can be a detached house, townhouse, or apartment, with tax credit given for each qualified apartment unit in an apartment building, and any buildings cannot be more than three stories above ground level.
Avoid missed opportunities
Unfortunately, many international investors either miss a credit opportunity or fail to identify the full array of activities that may be eligible.
So, getting the most out of tax credits requires a deliberate approach that begins with an in-depth discussion and evaluation of the wide range of tax savings opportunities available, and devising strategies to benefit from them.
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Date: January 2020