Unlocking Business Credits: Are You Taking Advantage of These Valuable Opportunities

In today’s challenging economic climate, businesses need every advantage they can get. Tax credits, exemptions, and other incentives can offer much-needed financial relief. However, many of these valuable benefits often go unclaimed simply because businesses aren’t aware of them.

Let’s explore two key types of business incentives and how they can help reduce your tax burden.

1. Statutory Incentives

Some business credits are available “as of right,” meaning that if your business meets the eligibility requirements, you can claim the benefit directly on a timely filed tax return. These incentives, offered by both federal and state governments, are designed to promote specific activities or investments. Here are a few examples:

• Work Opportunity Tax Credit (WOTC): This federal credit ranges from $2,400 to $9,600 per eligible new hire from certain disadvantaged groups, such as veterans, welfare recipients, convicted felons, and workers with disabilities. While claiming this credit requires paperwork, the financial benefit can be substantial.
• Research and Development (R&D) Tax Credits: Available at both the federal and state levels, R&D credits support businesses that invest in innovation. Whether you’re developing new products, improving processes, or creating software for internal use, you may qualify for the credit. The federal credit equals 20% of the amount by which your qualified research expenses exceed a base amount. Even if your business doesn’t owe income taxes, you may be able to carry the credit forward, or in the case of startups, offset up to $500,000 in employer-paid payroll taxes.
• Empowerment Zone Incentives: Businesses operating in federally designated “empowerment zones” may qualify for tax credits of up to $3,000 per eligible employee. These credits aim to boost economic activity in distressed areas.
• Industry-Based and Investment Credits: Many states and local jurisdictions offer targeted tax credits to attract specific industries, such as manufacturing or film production. Investment tax credits are also available for businesses making capital investments within a jurisdiction.

2. Discretionary Incentives

Discretionary tax incentives are negotiated with government officials and are often used to encourage businesses to stay in or relocate to a particular state or locality. To secure these benefits, businesses must demonstrate that they’ll provide value to the area, such as job creation or revenue generation. These incentives can include:

• Income and payroll tax credits
• Property tax abatements
• Utility rate reductions

Don’t Leave Money on the Table

Each year, many businesses miss out on valuable tax credits simply because they’re unaware of them or assume they don’t qualify. With a wide range of incentives available, it’s essential to consult with your tax advisors to ensure you’re taking full advantage of all the opportunities available to your business.

Sidebar: Sales Tax Exemptions

In addition to income tax credits, many states offer sales tax exemptions. Common examples include purchases by:

• Retailers for resale
• Manufacturers for equipment, raw materials, or components used in production
• Specific tax-exempt organizations
• Agricultural businesses for farming equipment, feed, seeds, fertilizers, and more

Businesses should understand the available exemptions in each state where they operate and what documentation is required to qualify, such as holding a valid resale or exemption certificate.

The HoganTaylor Tax Practice

If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.