Tax Tips for Surviving the Credit Crunch

The down economy and credit crunch have caused many businesses to look for strategies that reduce expenses and raise cash. Grant Thornton LLP offers some tax tips for surviving the tough economy and credit crunch.

"Managing your tax burdens is one area where appropriate planning and action can put much-needed cash back in your pocket," said Dave Auclair, managing partner of Grant Thornton LLP's National Tax Office. The following five tax tips are intended to be general observations and to highlight ideas that may be helpful.

1. Are you timing investments to take full advantage of economic stimulus legislation? Time is running out to take advantage of the bonus depreciation provided in this year's economic stimulus legislation. Many types of capital investment will be eligible for 50% bonus depreciation if the investments are made and the property placed in service in 2008.

2. Are you confident you're taking full advantage of opportunities to accelerate expenses and defer taxable income? An accounting methods review can reveal sound opportunities to defer the recognition of revenue or accelerate expense deductions. While often overlooked in a robust economy, these reviews often result in meaningful and immediate benefits. A change in accounting method sometimes allows benefits that would have been realized in prior years to be recognized in the year the change is implemented.

3. Are you using every opportunity to reduce "above-the-line" non-income tax burdens, such as sales and use or property taxes? Consider whether your business could use a separate leasing or procurement entity to own and lease fixed assets, which can reduce sales and use tax. Challenge property tax valuations on your real property, where appropriate. Depending on your industry, look at other non-income planning opportunities, including excise taxes.

4. Are you using tax credits and saving on your research and development? Many companies miss opportunities to claim valuable state and federal tax credits, especially the federal credit for research and development. The research credit was just extended through 2009, so don't miss it because you don't document or categorize expenses correctly. An R&D study can help you substantiate and claim the full allowable credit. 5. Have you reexamined your tax strategy in light of new profit outlooks in the countries where you have operations?

For companies experiencing a new mix of taxes and losses in the countries where they do business, a fresh look at the foreign tax credit may result in significant savings. In the case of an overall foreign loss, foreign source income planning is required.

"Your best approach depends on your industry and the structure of your business," said Auclair. "Facts and circumstances vary, so check with your tax advisor for help in determining how these planning opportunities may apply in your situation."

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