10 Tips to Save on Paying Corporation Tax

Corporation tax is a tax that is applied to the profits obtained by commercial companies and other legal entities during a fiscal year, taxing the income of companies and other legal entities, residents throughout the U.S territory.

The main tax that all companies incorporated under US law have to face is Corporation Tax. Its correct calculation, as well as the application of all the deductions to which it is entitled, is a fundamental process for the balance of a company. If Corporation Tax is known for anything, it is due to its confusion when separating expenses that are deductible and those that are not.

Who is required to file the Corporation Tax?

All entities that have their residence in U.S territory have the obligation to file the Corporation Tax.

Companies resident in U.S territory are understood as entities in which any of the following requirements are met:

  • That they had been established under U.S law
  • They have their registered office in U.S territory
  • That they have the effective management headquarters in U.S territory

What expenses are deductible?

The deductible expenses of the Corporation Tax are the following:

  • Deductions for investment incentives
  • Deductions for Research and Innovation activities
  • Deductions for conservation and improvement of the environment
  • Deductions for conservation and improvement of the environment
  • Deductions for professional training expenses
  • Deductions for job creation
  • Deductions for investment in book publishing, film productions and Assets of Cultural Interest

What expenses are not deductible?

The non-deductible expenses of the Corporation Tax are the following:

Dividends and other forms of remuneration to partners for their participation in the capital stock.

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The expense of Corporation Tax

Penal and administrative fines and penalties, the surcharge of enforcement and the surcharge for late filing of declarations, settlements, and self-assessments.

Amortizations and provisions that exceed the limits and assumptions indicated in the normal

Losses in the game

Expenses for services rendered from tax havens or paid through persons or entities residing there

Allocations to provisions or internal funds to cover contingencies identical or analogous to those that are the subject of the revised text of the law regulating pension plans and funds

Donations and liberalities

The requirements that expenses must meet to be deductible in Corporation Tax are as follows:

  • Must be accounted for
  • They must be justified
  • They must be imputed in the corresponding exercise.

That there is a correlation with income. In order to be considered deductible, expenses must be directly focused on obtaining income, without being considered liberal.

Once we have focused on the subject, let’s go with the tips that will allow you to save on the payment of Corporation Tax.

10 tips to save on paying Corporation Tax

Amortize your company’s assets

Amortizations are reductions in the value of assets or liabilities to reflect changes in the market price or other reductions in value in accounting. You can reduce the corporation tax through free amortization and accelerated amortization.

Deduct credit impairment losses

This tip is only applicable for small companies and they can do so up to a limit of 1% on existing debtors at the end of the tax period.

Provision of invoices

Another aspect to take into account is to see if we have overdue invoices with more than 6 months at the end of the fiscal year, normally on 12/31. In this case, the regulations allow us to allocate a provision for the same amount, thus reducing the tax base of the tax.

Research and development tax credit

The US government has the R&D tax credit which is a tax incentive for businesses that conduct research and development for the purposes of creating new or improving existing products, technologies, or materials.

If the company is going to carry out R&D or innovation projects, the R&D tax credits can be used to offset corporate income taxes, or employer social security taxes (up to $250,000 per year).

Capitalization reserve

The capitalization reserve allows companies to cut 10% of the amount allocated to this instrument on their tax base. Only if the reserve becomes unavailable and its own funds are held for five years.

Create more jobs

Start-up companies, when hiring their first employee (must be with an indefinite contract to support entrepreneurs) may deduct $3,000, or more or less. Templates of less than 5 employees may deduct 50% of the full fee.

Leveling reserve

This tip deals with a postponement of taxation for a maximum period of five years. The leveling reserve is a reduction in the positive tax base of up to 10% of its amount, without exceeding one million euros. Only small companies can apply it.

Financial expenses

The deduction limit of financial expenses for loans is in the million dollars or 30% of the profit.

Civil society

If you have a civil society, it will be necessary to consider that, for a few past years, these entities, if they have legal personality and commercial objects, will be taxed through corporation tax. Therefore, in order to save on the payment of corporation tax, there is the possibility of dissolving them with liquidation.

Deduct expenses for customer and supplier service

These expenses may not exceed the net amount of the turnover by more than 1% in order to be deducted.

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