To promote economic development and investment opportunities, federal, state, and local governments offer a number of tax credits and incentives to allow businesses to reduce tax burdens, but millions of dollars in credits go unclaimed each year. Navigating the wide-range of available credits and incentives can be an overwhelming task, and many businesses don’t realize that they can take advantage of these credits. Knowing what questions to ask and where your company’s opportunities may be is a good place to start when evaluating your situation.
Warren Averett’s specialty tax experts weighed in on the five credits and incentives they see companies overlooking the most often.
- Fuel Credit
The federal government imposes taxes on a variety of fuel types in order to fund road projects across the country. Because not all fuel consumption takes place on roads, businesses that operate machinery and vehicles in other capacities may be eligible for a fuel-tax credit.
Examples of cases in which a credit or refund may apply include farming purposes, off-highway business use, export, in a boat engaged in commercial fishing, a school bus, etc.
- Research and Development Tax Credit
Many businesses wouldn’t suspect that they could qualify for research and development (R&D) credits. However, R&D tax credits apply to almost every industry.
If you have developed new products, processes or software, or even made improvements to existing products, processes or software, you are most likely eligible for the R&D tax credit. R&D credits also apply to unsuccessful attempts to develop, or improve, products, processes or software and can go back to three years.
- Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is a federal tax credit program available to employers who hire candidates from certain groups. These groups include individuals who have faced challenges in finding employment, including, but not limited to, veterans, food stamp recipients and ex-felons. If you are hiring a new employee, you may want to keep in mind that by offering someone who falls into one of these groups an opportunity at your organization, you could gain your own opportunity to save on your taxes.
This program allows an employer to receive a one-time credit up to $9,600 per approved employee, with no limit on the number of new hires who can qualify. For-profit and tax-exempt employers of any size may apply, and any type of job qualifies (temporary, seasonal, part time and full time).
- Investment Tax Credit
If your business is investing in new property, buildings, equipment or general improvements, you might be eligible for the Investment Credit. Building and expanding projects are costly; fortunately, federal and state governments offer tax credits and incentives to offset those costs and encourage your business to make investments or improvements.
An Investment Tax Credit provides a direct tax rebate of a certain percentage of the investment in a qualified asset or business. Generally, the credit is a set percentage of the amount invested. Qualifying investments range from the installation of energy efficient appliances to property investments made in certain underserved communities.
- Cost Segregation
Cost Segregation does not technically fall into the tax credit category, but it does save companies money on their tax bills. Cost Segregation studies allow businesses that have constructed, purchased, expanded or remodeled their buildings and real estate assets to accelerate depreciation deductions and defer federal and state income taxes.
A Cost Segregation study dissects the construction cost or purchase price of the property that would otherwise be depreciated over 27 ½ or 39 years. The primary goal of a Cost Segregation study is to identify all property-related costs that can be depreciated sooner, over the course of 5, 7 and 15 years. The study can accelerate depreciation deductions and help companies take advantage of the time value of money.
While these are the most overlooked credits, your company could be eligible for additional credits and incentives. Warren Averett has developed a diagnostic tool that identifies tax credits and incentives you may be overlooking. You can learn more about Quali-Finder™ and starting the free diagnostic here.