The Wall Street Journal estimates that as little as five percent of qualified businesses take advantage of the domestic tax breaks they are entitled to. Many of these business owners conclude incentives do not justify the time, effort and expense to qualify for them. Consequently, small business owners are missing out on millions of dollars in tax deductions and breaks.
Financial benefits may include but are not limited to cash grants, tax abatements, income tax credits, and interest-free loans. Eligibility varies, but thresholds to qualify can be low.
Below are nine of the most common ways your business may qualify for business tax credits and government incentives:
1. Job Creation and/or Retention
State and local tax credits and grants are available to companies with minimum qualifying employment thresholds for expanding, relocating, and retaining jobs. Do you plan on hiring new full-time, permanent jobs over the next 24 months? Businesses that crate as little as 25 jobs, and in some cases ten jobs may be eligible for job creation tax credits or cash incentives.
2. Target Hiring
If your business has a social component or you are open to the idea of hiring structurally disadvantaged individuals you can take advantage of state and federal assistance for hiring unemployed veterans, ex-felons, temporary assistance for needy families (TANF) recipients, supplemental nutrition assistance program (SNAP) recipients, summer youth employees, and etc. Potential employees are often vetted prior to your hiring and section process to counter attrition.
3. Employee Training
Local workforce agencies awards grants usually up to 50 percent of training cost to assist in training, developing and retaining current employees and individuals to be hired. Do you train employees as part of your on-boarding? Do you have a new system you are rolling out that requires training? If so, this is a no brainer.
4. New Construction and/or Rehabilitation
Construction and renovation signals to the government that your business is growing and the government is all about economic growth. New construction or significant remodeling or rehabilitation with minimum qualifying capital investment may qualify for local and state tax credits.
5. Location in a Distressed Urban or Rural Area
A number of jurisdictions incentivize companies to locate in a distressed or rural area an provide revitalization to the community. In return for economic growth and reduced unemployment, communities will offer tax credits if located within an eligible boundary.
6. Relocating and/or Consolidating
Depending upon the scope, a consolidation or relocation of a warehouse or office space could create significant tax credits. Both trigger a net increase for employment, retention, and new capital investment.
7. Sustainability Investment
Qualifying investments in solar, wind, fuel cells, hydro, biomass, lighting, HVAC, and etc. are becoming increasingly relevant as more businesses establish sophisticated sustainability strategies. You can qualify for both federal and state tax credits, in addition to your local utility company's offerings.
8. New equipment
Buying new computers, machinery, or freezers? While minimum qualifying investment thresholds can be in the millions, securing an abatement is a sure fire way to reduce your personal property tax and sales tax burden.
9. Research and Development
Historically one of the most lucrative tax credits of them all, the federal government has incentivized research and development to keep U.S. companies competitive. Simply stated, eligible research and development expenses qualify for a number of federal and state tax credits.
This list isn't exhaustive--it's meant to serve as a guide for identifying potential incentives related to your business activities. Navigating potential tax credits can be overwhelming, and it's incumbent upon you to do your research with a consultant that specializes in securing tax credits.
Still, this should help you get started. Good luck.