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The Foreign-Derived Intangibles Income Deduction: Good News for Small Business Owners

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During the COVID-19 pandemic, good news is in short supply, especially in Florida and especially for small business owners.  The relief efforts aimed at small businesses have tended to be messy in their implementation and to come with many strings attached.  The success of small businesses is essential to our economic recovery; small business owners have many options, but choosing which initiatives and tax credits will work best with your business strategy is not always an easy decision.  A law enacted before the pandemic may turn out to be a boon to small business owners that market their products or services to consumers outside the United States.  To find out more about the Foreign-Derived Intangibles Income (FDII) deduction, contact a Central Florida business tax lawyer.

What Is the Foreign-Derived Intangibles Income Deduction?

Public Law 115-97, the Tax Cut and Jobs Act (TCJA), has been in effect since late 2017.  Section 250(a) of this law provides for the Foreign-Derived Intangibles Income (FDII) tax deduction.  As the name suggests, it is available to corporate entities that conduct some of their business outside the United States.  What is less clear from the name is what kinds of business activities apply.  The TCJA interprets the meaning of the word “intangibles” very broadly, perhaps more broadly than any other law in American history.  If your company offers any kinds of products and services to customers outside the United States, there is a good chance that you qualify for the FDII tax deduction.  If you claim this tax deduction, the tax rate you will pay will be 13.125 percent for tax years beginning on or before December 31, 2025 and 16.406 percent for tax years beginning after that date?

Does Your Company Qualify for the FDII Tax Deduction?

The FDII deduction is meant to encourage many different types of businesses, but it only applies to C corporations.  If you are considering forming a new company, this tax deduction may play a role in determining which type of entity structure you choose.

Unlike other tax deductions for companies that export products, the FDII tax deduction also applies to U.S. companies that manufacture their products in foreign countries and sell them in foreign markets, not just companies that manufacture products in the U.S. and sell them abroad.  Best of all, in an effort to encourage small businesses to claim this tax deduction, the IRS has greatly reduced the amount of documentation small companies are required to present in order to claim the deduction.  In this context a small company is one with an annual gross income of $25 million or less.

Contact an Attorney Today for Help

A Tampa tax controversy attorney can help make your business profitable by helping you decide which tax deductions your company should claim and can help you prepare the documentation required to claim them.  Contact David Toback for help today.

 

Resource:

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

https://www.davidtobacklaw.com/corporate-leases-for-small-and-big-businesses/

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