Tax Abatement

Tax Abatement

Tax Abatement Definition

Tax abatement, defined as the decreasing of the tax responsibility of a firm by government, is one of the tools which government uses to motivate behavior in a firm. A tax abatement credit is generally given to a firm when the government wants the saved money to be spent in another way: to increase savings or spending rate, invest in equipment, or others.

Tax Abatement Meaning

Tax abatement means a tax incentive given to business‘ for the purpose of spending it in another way. These motivations are common to in the business world; tax breaks for research and development, depreciation, and more. These perks allow a business to focus on the future rather than trying to survive in the present.
From a governmental standpoint, a tax abatement program is a tool to motivate business to operate a certain way. Similar to the savings and loan crisis of the 1980’s, where government increased regulations, tax abatements have the opposite effect. Rather than preventing certain behavior, a tax abatement agreement can make other behaviors easier and more appealing. This type of approach is favored by many economists.

Tax Abatement Example

Claus is the owner of a technology company. Creating microprocessors, Claus has many expenses to cover along the path of creating a better product. Claus must constantly be thinking forward to what the market will do.
Claus’ company experiences many tax abatements. First, he has a depreciation schedule for many of his capital expenses. Thanks to the tax abatement forms he completes, he can recover the expense of these items rather than having to pay for them. Claus’ company also receives tax abatement for research and development. Here, his company can recover the expenses of r&d. Due to the fact that r&d takes quite a while to create return on investment, Claus can use the cash he saves rather than having it tied up into finding a better way to do business.
Claus is very thankful for the tax abatement he receives. It makes his life, as well as his business operations, much easier. When Claus goes home he must fill out yet another tax abatement letter; the IRS discount for having a family with children.
Download your free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.
tax abatement
[box]Strategic CFO Lab Member Extra
Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
tax abatement
See Also:
Direct Tax
Tax Brackets
Ad Valorem Tax
Tax Efficiency
Federal Unemployment Tax Act (FUTA)


Tax Brackets

See Also: Marginal Tax Rate Prepaid Income Tax Ad Valorem Tax Deferred Income Tax Cash Flow After Tax Tax Brackets What are tax brackets? Tax brackets are levels of taxation determined by income. Individuals with income falling within a certain tax bracket pay taxes according to the stated rate for that bracket. Typically, lower income

Read More »

Impact of FIT on Sustainable Growth Rate

The Institute of Fiscal Studies authored a study on tax systems in the UK called “Tax by Design: Mirrlees Review.” They concluded that “in the long-run, the tax system should be judged in part on its impact on the sustainable growth rate of the economy… viewing efficiency in a dynamic as well as static sense.” As we

Read More »

W2 Form

See Also: 401k Cash Flow After Tax Deferred Income Tax Form 1098 Marginal Tax Rate W2 Form Definition The W2 form definition is used by employers to report employees‘ wages to the Internal Revenue Service (IRS). The W-2 is also used to report the amount of taxes that have been withheld from each paycheck. W2

Read More »


Financial Leadership Workshop

MARCH 28TH-31ST 2022


Financial Leadership Workshop


August 7-10th, 2023

WIKI CFO® - Browse hundreds of articles
Skip to content