Undeniably, small and large businesses alike face multiple challenges trying to stay competitive.
Fierce competition is forcing most vertical markets to continuously look for new ways to increase revenue by creating and innovating new products and services, and drive customer experience processes while simultaneously trying to reduce cost.
In addition, focusing on the numerous tax codes adds significant complexity to operating a profitable business.
Steve Forbes once said, “The tax code is a monstrosity, and there’s only one thing to do with it. Scrap it, kill it, drive a stake through its heart, bury it and hope it never rises again to terrorize the American people.”
Moreover, according to CCH Standard Federal Tax Reporter, in printed pages, our tax code is 73,954 pages long. Seemingly, the complexities of our tax code are fully understood by none and misunderstood by all.
There are hundreds of local, state and federal incentives available that allow companies to either generate additional revenue streams, reduce taxes or provide significant tax breaks.
For example, section 41 of the internal revenue code, also known as the research and development tax credit, allows companies to take a dollar-for-dollar tax deduction on the current year and even tax refunds on prior years – with interest.
One reason companies don’t apply for this credit is they believe they don’t qualify. Since the federal government has dramatically expanded ways to qualify, you no longer need to be in manufacturing in order to qualify.
If you have engineers on staff, write software, perform quality assurance, develop prototypes, new product development, apply patents, develop new concepts or develop new processes, you might qualify.
The federal government takes this incentive seriously as it releases between $5 billion and $8 billion annually to trigger job growth and stimulate innovation and creativity.
Another potentially significant benefit is the cost segregation study for commercial building owners.
The cost segregation study is accelerated depreciation of personal property. So, rather than depreciating your property over 39 years, you depreciate at five, seven or nine years.
With cost segregation, you do not need to amend your tax returns and, if done properly, you can reduce property taxes while potentially generating “catch-up” depreciation from prior years.
In each case, these studies should be done by experts with a vast knowledge of the very specific tax laws. According the IRS, these studies should be engineering based, and, to be compliant, should be conducted by experienced teams of IP/tax attorneys and engineers. Ultimately, these studies should end up being 40- to 50-page detailed engineering reports.
With the implementation of the Affordable Care Act, many companies will face massive health insurance premiums. In fact, group health insurance has increased 300 percent since 1999.
There are decades of old tax codes that can virtually eliminate health-plan deductibles and enable employers to reduce their health benefit expense by up to 25 percent without having to change their plan or provider.
Another potential niche revenue stream and cost reduction initiative that’s not part of the tax code is workers’ compensation audits.
Workers’ compensation can be a large expense for companies and, due to its complexities, is not understood. Therefore, companies overpay. Roughly 70 percent overpay on their workers’ compensation premiums.
One significant complexity is the number of classifications. Many states have more than 700 classifications, so companies and people are classified incorrectly. In addition, each state has different interpretations of the classifications. This makes it virtually impossible for providers to truly comprehend each individual policy.
The internal audits conducted by your provider simply verify payroll. They do not check for rule violations, misclassifications or overcharges.
These programs are only a tip of the iceberg available to companies. By taking advantage, you will realize new revenue streams, reduce cost and increase your chances of profitability and sustainability.
Future articles will be more specific about a singular program.
• Jeff Ernst is managing director of Ernst Consulting Group, a brokerage company specializing in expense recovery programs and additional revenue streams. He can be reached at 877-221-8811 or at email@example.com.