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Pre-Pandemic Tax Deduction May Offer Big Savings for Some Small Businesses

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During the COVID-19 pandemic, many small business owners have turned to the Internet, as well as to their small business lawyers, to help them find creative solutions to the challenges the ongoing pandemic presents to economic recovery. Better days will eventually come, but what should small businesses do to stay solvent until those days arrive? It is impossible to predict which retail businesses will be allowed to sell products and offer services in person three months, six months, or a year from now, and whether customers will feel comfortable buying in person. There are just too many unknowns. When will a vaccine be available? How much money will consumers receive in relief funds, whether in the form of a second round of stimulus checks or an extension of the additional unemployment benefit? Will an online school year help stop the spread of the virus or just sap the productivity of parents working from home because they have no other childcare options? A Washington DC small business lawyer can help you decide how to keep your business afloat in the context of current policies and the current pandemic.

Hope for Businesses That Market Their Products and Services Internationally

Since it feels like ages since anyone in Washington DC attended a social gathering, 2017 seems like ancient history, even in a town that measures time in terms of presidential administrations. At the end of 2017, in a business climate very different from the one we are experiencing today, Congress enacted Public Law 115-97, the Tax Cut and Job Act (TCJA), which contains a host of tax incentives for businesses of various sizes. Article 250(a) of the TCJA sets out the rules for the Foreign-Derived Intangibles Income (FDII) tax deduction. The TCJA defines “intangibles” so broadly as to include virtually all types of products and services, as long as they are sold to consumers outside the United States.

Businesses can claim the FDII deduction if they provide products or services to consumers internationally, regardless of where the products or services originate. This differs from earlier policies that only allowed businesses to claim the tax deduction if they produced the merchandise in the United States and sold it abroad. In other words, you can claim the FDII deduction even if your U.S.-based company produces its products in a foreign country and also sells them there.

If you claim the FDII deduction, your tax rate will be only 13.125 percent until the end of 2025, and 16.406 percent after. Businesses must, of course, provide documentation about where they sold their products, but the documentation requirements are much less rigorous for businesses with an annual gross income of $25 million or less. This provision exists to encourage small businesses to claim the tax deduction.

Let Us Help You Today

A Washington DC small business lawyer can help you maximize your tax deductions so that your company can afford to retain as many employees as possible. Contact Tobin, O’Connor & Ewing for a consultation on your case.

Resource:

congress.gov/115/plaws/publ97/PLAW-115publ97.htm

https://www.tobinoconnor.com/when-your-business-model-adapts-to-the-changing-times-but-your-landlord-doesnt/

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