Like many individuals even the Corporations want to minimize their taxes in every possible manner. American corporations have to pay one of the highest tax rates in the world.
There are several corporate tax breaks that can minimize taxes. Here are few of the most costly corporate tax loopholes that can benefit the corporations:
Inventory Property Sales
American companies’ foreign income is taxed in the country in which it is generated. U.S has this policy so that the companies don’t have to pay double tax. Some companies avoid taxation by artificially boosting foreign income through a “title passage rule” that allows companies to allocate 50 percent of income from U.S. production sold in another country as income generated by that foreign country.Mostly multinationals with operations in high-tax foreign countries get advantage from this.
Tax Credit on Research and Experimentation
U.S government gives a tax credit on research and experimentation in order to encourage companies to carry out research. This break allows for a 20 percent tax credit for “qualified research expenses. Mostly Pharmaceutical companies, high tech companies, engineers, agriculture conglomerates benefit from this tax credit.
Graduated Corporate Income
This policy places the first $50,000 of a corporation’s profit at a 15 percent tax rate, with higher profit levels garnering higher tax rates, until it tops out at 35 percent for taxable corporate income exceeding $335,000. Individuals that own small corporations get a lot of benefit from this tax credit.
Deferred Taxes for Financial Firms on Certain Income Earned Overseas
Because most financial firms conduct their foreign operations as branches rather than as subsidiaries, as most companies in other industries do, they do not benefit from the tax breaks afforded to foreign subsidiaries. To compensate, this loophole enables financial firms to treat income from their foreign branches as if they were subsidiaries, along with all of the attendant tax benefits.
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