The end of the year is fast approaching and it’s a good time to do some tax planning; in other words, figure out what you can do to legitimately reduce your tax bill. For businesses there are a variety of options we’ll review in this month’s column. Of course, you should run these by your tax professional or CPA to be sure they’ll apply to you and will make financial sense.
Very few businesses take advantage of tax breaks they are entitled to or they assume it will be too difficult to qualify for tax breaks that are available. Here are some that may be worth investigating:
• Equipment Purchases and Leases—For equipment or software that is purchased or financed by midnight December 31, you may qualify for a Section 179 deduction. The first year limit on a Section 179 write-off is $500,000 for new or used equipment and off-the-shelf software. Section 179 is a genuine small business tax incentive because larger companies that spend significantly more on equipment and software would be unable to qualify. Many vendors are aware of this tax incentive and can help you navigate a qualifying purchase and financing of equipment you may have been planning to buy anyway.
• Job Creation or Retention—There are state and local tax credits and grants you may be able to qualify for if you expand, relocate or retain jobs. If you happen to be planning to hire new full-time employees in the next 24 months, you may only need to hire as few as 10 new workers to qualify for tax credits or cash incentives.
• Employee Training—Often local workforce agencies award grants that cover up to 50% of training costs to assist in training, developing and retaining current employees and new hires. If training is part of your normal on-boarding for a new employee, or if you have new equipment or systems that will require training of current employees, this tax incentive may work for you.
• Targeted Hiring of Disadvantaged Individuals—If you are open to the idea of hiring people that are viewed as structurally disadvantaged, ex-felons, recipients of “temporary assistance to needy families (TANF),” or unemployed veterans, then you can qualify for state and federal assistance.
• New Construction or Rehabilitation Projects—Are you planning to build a new facility, remodel or rehabilitate an existing facility? New construction or significant remodeling and rehabilitation with a minimum qualifying capital investment may qualify you for local and state tax credits.
• Research and Development (R&D) Credits—There is often an assumption that R&D Credits are only for companies doing high-level, very technical research in clean rooms—that is not the case at all. If you are doing engineering design and manufacturing work, it may qualify your business for R&D tax credits.
This is not an exhaustive list of ideas for tax planning and obviously you should consult with a tax professional that understands the tax code in detail before you attempt to use it to your advantage. It’s also worth mentioning that there are professionals and businesses that focus on helping other businesses qualify for tax incentives and are only compensated if they can legitimately help you achieve savings.
