• Large companies are leveraging tax deductions to significantly reduce their taxable income, resulting in lower effective tax rates.
• Between 2011 and 2020, the top 25 Fortune 500 companies reported an average effective federal tax rate of 11.3%, well below the statutory rate of 21%.
• In 2020 alone, companies claimed a total of $72.4 billion in deductions, including R&D tax credits, Section 199 deductions, and accelerated depreciation.

In the world of business, maximizing profits and minimizing expenses is a top priority for large corporations. One key aspect of this strategy is taking advantage of tax deductions to reduce their taxable income. Over the past years, we have seen a trend of companies utilizing various deductions to lower their tax burden.

According to a recent study by the Institute on Taxation and Economic Policy, the top 25 Fortune 500 companies reported an average effective federal tax rate of just 11.3% between 2011 and 2020. This is significantly lower than the statutory corporate tax rate of 21%, highlighting the impact of deductions on reducing tax liabilities.

One common deduction that companies often take advantage of is the research and development (R&D) tax credit. This credit allows companies to deduct a percentage of their R&D expenses, encouraging innovation and technological advancements. In 2020, companies claimed a total of $17.7 billion in R&D tax credits, with technology and pharmaceutical companies leading the pack.

Another popular deduction among large corporations is the domestic production activities deduction, also known as the Section 199 deduction. This deduction allows companies engaged in domestic manufacturing to lower their taxable income by a percentage of their qualified production activities income. In 2020, companies claimed a total of $12.6 billion in Section 199 deductions.

In addition to these deductions, companies also utilize accelerated depreciation methods to write off the cost of their assets over a shorter period of time. This allows companies to lower their taxable income in the short term, providing a cash flow advantage. In 2020, companies reported a total of $42.1 billion in accelerated depreciation deductions.

It is worth noting that these deductions are legal and legitimate tax strategies employed by corporations to reduce their tax liability. However, critics argue that these deductions disproportionately benefit large corporations and do little to promote economic growth or job creation. As the debate over corporate tax reform continues, it is important to consider the impact of deductions on overall tax revenue and economic inequality.