With payrolls to manage, bills to pay and customers to care for, small-business owners have plenty of demands on their time, which often means digging through the tax code to find possible savings isn’t a priority.
But within the sprawling rules of the Internal Revenue Service lie deductions and credits that can help small businesses save money.
VEGAS INC interviewed two local tax preparers to find out what deductions and credits small businesses might not think to take advantage of come tax time:
Small business health care tax credit
Introduced in 2010, the tax credit applies to small businesses that cover at least 50 percent of their employees’ health care costs and who have fewer than 25 full-time employees.
The credit ranges to a maximum of 35 percent of employer contributions to health premiums and was created to encourage businesses to provide health insurance to their employees.
“For small businesses, it’s definitely something they should explore,” said Lyndsay White, a certified public accountant and tax manager at Houldsworth, Russo and Co. “It’s new, and if you have a tax preparer who isn’t staying current on new laws, you might miss it.”
The credit works on a sliding scale, with smaller businesses receiving a larger percentage of the credit.
New hire retention credit
Established under the Hiring Incentives to Restore Employment Act, this new credit benefits businesses that hired an unemployed or underemployed person between Feb. 3, 2010, and Jan. 1, 2011, and retained that worker for at least a year.
Businesses can receive up to a $1,000 credit for each qualified worker on their 2011 income tax returns. To qualify, a new employee must have not worked more than 40 hours a week during the 60 days prior to the hire.
“There are some rules that go along with it regarding the way you’ve kept the employee on at your business,” White said, “but if you keep them employed for at least 52 weeks, you can get a credit for that.”
Code section 199 deduction
Designed to spur domestic manufacturing, this deduction applies to many local businesses, even if they aren’t in the manufacturing business.
“What’s interesting is that beyond manufacturing, the deduction is also available to construction firms, engineering firms and architectural firms,” said Jeff Breeden, a CPA and partner at Stewart, Archibald and Barney. “That’s where we’re not seeing it used.”
The section allows qualifying companies to deduct up to 9 percent of their income on their tax returns, Breeden said.
“It’s no cash out of pocket. You don’t have to spend any money, you just have to know about it,” he said. “It’s been around a long time, but not everybody has applied it to all of the corners of business.”
There are some strings attached, including a mandate that the work is done in the United States.
Qualified leasehold improvement property
With a glut of commercial real estate available throughout the Las Vegas Valley, companies that relocate and find themselves upgrading or renovating leased space can receive a tax deduction to help offset those costs.
“What we’re seeing is people don’t always understand that when they move into a new space, that build out can be deducted much more quickly than normal,” Breeden said. “The general rule is the building you’re moving into needs to be more than 3 years old, but then you can write off the improvements right away and that can make a difference.”
Generally, the cost of improvements to a leased space can be deducted over 15 to 40 years. But for 2011, businesses can deduct those expenses in one lump sum, Breeden said.