Tax Credits & Incentives for Businesses
Author: Shawn Loader
Tax deductions and employment credits provide businesses with valuable incentives to expand hiring and production. Unfortunately, Congress must annually renew the legislation enacting these items. While popular with both legislators and taxpayers, the renewal legislation often is bundled with more controversial measures or lacks revenue offsets, which prevents immediate passage of the renewals and causes uncertainty for businesses and tax planners.
Unless otherwise stated, Congress has not yet renewed the following credits and incentives as of publication, meaning they’re not applicable to the 2015 tax year. Please note: Historically, Congress has retroactively renewed the credits and incentives with little to no modification.
Businesses earn the Work Opportunity Tax Credit (WOTC) by hiring qualifying people in certain target groups, such as unemployed or disabled veterans, SNAP or TANF recipients, ex-felons and individuals residing in distressed or rural areas of the country. Many businesses don’t pursue the WOTC due to a lack of understanding surrounding the eligibility rules. In general, businesses may receive a tax credit of up to $2,400 per eligible employee, but some targeted groups are eligible for a credit of up to $9,600 per employee. To earn the credit, businesses must receive state agency approval for each eligible employee. Businesses must implement credit approval as part of the hiring process.
Some businesses find the gathering of necessary information for the WOTC difficult and forego additional inquiry. Your tax advisor can help capture the necessary data using efficient online tools designed to help collect the required employee data components needed to claim the credit.
Businesses looking to relocate have a litany of considerations in choosing a target location. Your tax advisor can provide insight regarding applicable credit opportunities available for potential relocation sites. In certain areas, businesses may earn up to $3,000 per employee if the employees reside and work in an empowerment zone. The qualifying work site can either be the business’s core location or temporary work locations in an empowerment zone. In addition, businesses already operating in one of these zones can have their employee roster evaluated for empowerment zone residents. Preapproval for the empowerment zone credit is not required, so any business conducting work in one of these empowerment zones may qualify for credits if employees meet the residency qualification. Additional location-based incentives may apply at the state or local level.
Businesses also might consider whether they qualify for the research and experimentation (R&E) credit. Eligibility may be possible if a business is engaging in development of new technology, production processes, process improvements, patents, consumer software or other aspects of the business. This credit generally requires a more in-depth evaluation of the business’s mechanics than can be obtained through books and records. However, the benefits can be substantial.
BKD continues to watch legislative developments for the extension of these and other key tax benefits, including bonus depreciation, Section 179 expensing limits, New Markets Tax Credits and enhancements to the deduction of charitable contributions of inventory. After all, careful planning is the surest precursor to good luck.