5 Tax Incentives Your Business Should Consider
Craig McCurdy has been president of Environmental Systems Corp. in West Hartford since 1977, but he’d never claimed a pair of tax breaks that could have saved his company $200,000 to $300,000 annually – until two years ago.
At the helm of a $30 million energy services company with 130 employees, McCurdy never even knew about one of the tax breaks and thought the other applied only to large manufacturing companies.
It wasn’t until McCurdy hired Whittlesey that he discovered how much money he was passing up every year.
“I’ve talked to a number of similar companies and have yet to find anyone who is aware of these tax incentives,” he said. “It’s been a windfall for us.”
Is your business accessing the windfall that might be your right under tax law? Here are five tax incentives that businesses should be aware of.
1. Research & development credit
Staff wages are a necessary business deduction. Those costs (and certain others) are subtracted from your bottom line, saving the company tax payments on that amount. But in certain cases, R&D costs can be converted to full tax credits, not deductions, allowing your company to recoup the full amount of investment.
Environmental Systems Corp. discovered that engineers’ investigative work to help clients reduce energy costs on their buildings could qualify for this credit. Whittlesey connected the company with a specialty firm to comply with complex documentation requirements that allowed the company to look back five years and recover more than $250,000.
2. Energy tax deduction
For businesses such as Environmental Systems Corp., which help the government reduce its real estate energy footprint, a federal deduction can reduce tax payments. For ESC, that saved another $1 million going back over five years.
3. IC-DISC planning
Businesses that manufacture products in the U.S. for sale to overseas markets may be able to access a federal incentive that allows that income to be taxed at the lower capital gains tax rate. This generally requires the creation of a separate company, and some special calculations, but can be a great tax incentive.
4. Small business capitalization rule
The IRS now allows certain businesses to claim the full deduction for each piece of equipment costing $2,500 or less, rather than capitalizing the cost over a number of years. This allows businesses to claim the full tax benefits in the same tax year as the purchases.
5. Commercial real estate capitalization exemption
Commercial real estate owners can write off certain repairs to their buildings in the tax year they are made, rather than capitalizing and depreciating them over a long period of time.
Brenden Healy, a tax partner at Whittlesey, says tax reform now being implemented by Congress doesn’t appear to pose a threat to any of these deductions. There are many more specialized breaks buried in the tax code that a knowledgeable accounting firm can help a business unearth.
“The accountant gets to look like a hero when they help the business owner save money they can invest back into the business,” he said.
“The moral of the story, says McCurdy, “is that you should work with an accounting firm that stays current and pays attention to you.”
To find out what Whittlesey can do for your business, contact us.
A previous version of this story was first published by the Hartford Courant.
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