Case studies to guide your business tax strategy

This month’s focus on business tax strategy has included posts about its importance, how to create one, and how to align it with business goals. 

It all sounds great in theory, but how do you know they work? 

That’s what this week’s post is all about. We’ll review two real case studies demonstrating the power of tax strategies and provide ideas you can implement in your business.  

Let’s go! 

Case Study #1: Manufacturing

A company manufacturing eco-friendly packaging experienced rapid growth, increasing its workforce to 120 employees and generating $25 million in annual revenue. 

With that rapid growth came significant tax liabilities. 

The business reinvested heavily in research and development (R&D) and new equipment but lacked a formal tax strategy and wasn’t fully leveraging tax credits or deductions. 

The result was cash flow issues during tax season. 

After speaking with a CPA firm, business owners realized their R&D efforts qualified for a federal tax credit. The firm documented all expenses related to employee wages, supplies, and testing, securing $250,000 in tax credits for the business. 

The business also maximized its Section 179 deduction on $1 million worth of new equipment, writing off the full cost in the first year for a tax savings of $300,000. 

Since the business owned its manufacturing facility, a cost segregation study was initiated to determine which building components could be depreciated faster. That study yielded another $150,000 in additional deductions. 

The business operated in multiple states, so it worked with the CPA firm to ensure compliance and identify lower-tax jurisdictions for potential future expansion. 

The result was that the company increased revenue by 15% the following year, ended its cash flow crisis, reduced tax liability, and positioned itself for future growth.  

Case Study #2: Hospitality

A hospitality company with a growing chain of boutique hotels was wrestling with rising operational costs and fluctuating cash flows. 

They wanted to expand but were worried about borrowing more money. So, they turned to their CPA firm for advice on regaining more revenue by decreasing their tax burden. 

The CPA knew of the company’s commitment to the environment and providing job opportunities for economically disadvantaged employees. 

They also knew the business had invested in solar panels and energy-efficient lighting, which helped them utilize the 179D Energy Efficient Commercial Buildings Tax Deduction.

They also realized the company employed staff from underserved communities, allowing them to claim the Work Opportunity Tax Credit. 

Those two changes alone yielded the company $180,000 in federal tax savings. 

The CPA firm kept digging, identifying newly acquired hotel assets that could be depreciated faster, yielding another $250,000 in first-year deductions. 

They also helped the company extend its new tax strategy to include local and state taxes. 

One of its hotels was located in an area designated as a state economic development zone. The CPA firm helped the company identify and claim property tax reductions and sales tax rebates, saving an additional $50,000.

Ultimately, the tax strategy yielded the company $480,000, improved cash flow, and allowed it to expand without additional debt. 

The Bottom Line

These two studies illustrate that tax strategies are not just theoretical. They prove implementing a strong tax strategy can reduce financial headaches and create opportunities for almost any business. 

If your business does not have a tax strategy yet, use the ideas from this month’s series. You just might find your business at the center of a successful case study, too!