When tax season rolls around, businesses scramble to uncover every possible deduction to minimize their tax liabilities. While many are familiar with common deductions like office supplies, travel expenses, and employee salaries, there are several lesser-known strategies that can significantly reduce your tax bill. This blog post delves into the depths of tax codes to reveal some of the most uncommon yet potentially lucrative tax deductions and strategies for businesses.
Deducting your commercial property through cost segregation
One often overlooked strategy is cost segregation, a tax planning technique that accelerates depreciation deductions by identifying and reclassifying personal property assets. According to the american society of cost segregation professionals, this strategy can front-load depreciation deductions, offering an immediate reduction in current tax liability. For instance, non-structural elements like carpets, wall coverings, and some portions of the electrical installation can often be depreciated over a shorter life span, resulting in substantial tax savings.
Harnessing the power of research and development (r&d) tax credits
The r&d tax credit is a government incentive designed to reward businesses for investing in innovation within the united states. Yet, many businesses mistakenly believe this credit is only for tech companies or those with a dedicated r&d department. In reality, any company that develops or improves products, processes, or software, potentially qualifies. The national association of manufacturers reports that companies claiming the r&d credit span numerous industries, from manufacturing to food science, and even fashion.
The disabled access credit: supporting accessibility
Small businesses that make their establishments more accessible to persons with disabilities may be eligible for the disabled access credit. This credit covers 50% of the eligible expenditures in a year, up to $10,250 for a maximum credit of $5,000. Improvements such as adding ramps, making restrooms accessible, or even modifying equipment for disabled employees, can qualify. Despite its value, this credit remains underutilized, largely due to lack of awareness.
Deductions for environmentally friendly practices
Businesses that implement environmentally friendly practices and improvements can benefit from several tax incentives. For example, the business energy investment tax credit (itc) offers up to a 30% credit for the installation of solar energy systems. The irs also provides deductions for businesses that purchase electric and hybrid vehicles, under certain conditions. These incentives not only reduce tax liability but also support sustainable business practices.
Taking advantage of the work opportunity tax credit (wotc)
The wotc is a federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment. This includes veterans, snap (food stamp) recipients, and ex-felons, among others. The credit ranges from $2,400 to $9,600 per eligible employee, depending on the target group. Despite its potential benefits, the complexity of the application process means many businesses overlook this opportunity.
Conclusion
For businesses aiming to minimize their tax liability, venturing beyond the well-trodden path to explore lesser-known deductions can be highly rewarding. From cost segregation to environmental credits and incentives for hiring from targeted groups, the opportunities are diverse. Implementing these uncommon strategies requires a keen understanding of tax laws and often the guidance of a tax professional. However, the effort can significantly reduce your tax bill, freeing up resources to reinvest in your business’s growth and innovation. As we navigate the complexities of tax season, remember that with diligent research and strategic planning, there are numerous ways to achieve substantial tax savings.
