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06.03.2019 18:30 Age: 201 days

Federal Tax Abatements Your Business Can Utilize


Looking Into Tax Breaks

Whether you work in your organization’s accounting department or not, you undoubtedly recognize the incentives for your organization to lower its tax bill. The primary incentive is, quite obviously, economic. By taking advantage of an available tax abatement, your organization can allocate the capital saved into other things, whether that is a new plant or equipment, a new marketing strategy, or even a raise for employees. But beyond that, several tax abatements and tax credits can be an organization’s way of giving back to the community. Governments create tax abatements in order to promote some public good, whether that is economic development within a certain area or even retraining citizens to adapt to the digital economy.

Georgia businesses can certainly take advantage of several state and local tax abatements, but it’s important to remember that this isn’t the only game in town. There are some significant federal tax abatements and tax credits that you and your business will likely want to leverage in 2019. While the below list is not exclusive, these tax credits and abatements will, in all likelihood, help increase your bottom line.

Before we proceed, however, we would like to mention one key caveat. What follows is not tax advice. It is provided for informational purposes only. If you are seeking tax advice, we recommend that we speak with your organization’s attorneys and accountants. This is especially true if you are unclear whether a particular tax abatement or tax program applies to your organization.

Notable Federal Tax Abatements and Credits

Let’s start with the Work Opportunity Tax Credit.

This federal tax credit applies to businesses that hire individuals from certain targeted groups who have consistently faced barriers to employment. The list of targeted groups is quite large. It includes groups like qualified veterans, ex-felons, qualified long-term unemployment recipients, Supplemental Nutrition Assistance Program (“SNAP”) recipients, summer youth employees, and designed community residents (“DCR”). For a full list, you can click here. The Work Opportunity Tax Credit only applies if an employer can show (through a certification) that an individual is a member of one of the listed targeted groups. Ultimately, this tax credit has one important objective: to incentivize diversity within the workplace and to help these targeted groups obtain good jobs in the United States.

Another significant tax credit that you may be able to leverage is the Investment Tax Credit.

This tax credit is also known as the solar tax credit. If your business or organization has constructed and installed a solar energy system, you may be able to take advantage of this tax credit. If your business is eligible, you will be able to deduct 30 percent of the cost of installing a solar energy system on premises. There is no cap on the value that you are able to deduct. Quite obviously, the government implemented this tax credit to incentivize the development of renewable energy and to disincentivize the use of fossil fuels.

From there, one tax credit that can be particularly interesting for certain types of businesses is the Research Activities Credit.

This federal tax credit allows businesses to obtain funds to pay for research-related expenses. While the credit was designed to incentivize companies and other entities to increase their research and development expenditures, not every form of R&D qualifies for this tax credit. Specifically, qualified research expenses must be taken “in conjunction with discovering performance enhancing technologies.” Also, companies must have a year on year increase in research-related initiatives in order to actually claim the credit.

In addition to the Research Activities Credit, your business may be able to take advantage of the Disabled Access Credit.

This tax credit is easy to understand. It is granted to businesses that incur expenditures to accommodate individuals with disabilities. Not all businesses are eligible, however. This tax credit is targeted toward smaller businesses; particularly, those that earn less than $1 million per year and had no more than 30 full-time employees in the previous year.

Newer tax credits

The above are some older tax credits, but that doesn’t mean that there aren't new opportunities. Some of the newest federal tax credits and abatements come from the Tax Cuts and Jobs Act that was passed by the Trump administration. Most of the changes from this piece of legislation took effect last year and will affect tax returns filed this year. As part of the Tax Cuts and Jobs Act, there are two particular tax credits that we would like to discuss.

The first is the new employer tax credit for paid family and medical leave.

Under this general tax credit, your business would receive “a percentage of the amount of wages paid to a qualifying employee while on family and medical leave for up to 12 weeks per taxable year.” As far as eligibility, you would generally be able to receive the credit for wages paid in taxable years beginning after December 31, 2017 and before January 1, 2020.

In addition to this tax credit for paid family and medical leave, there is also an update to the rehabilitation tax credit.

If you do not yet already know, the rehabilitation tax credit is a federal tax incentive to encourage the renovation, restoration, and reconstruction of new buildings. Originally, businesses would receive a 10 percent tax credit for buildings placed in service before 1936 and a 20 percent tax credit for certified historic structures. The Tax Cuts and Jobs Act modified these levels for qualified expenditures after December 31, 2017. Specifically, it repealed the 10 percent tax credits for buildings placed in service before 1936. It also kept the 20 percent tax credit for certified historic structures, but requires those claiming the credit to prorate that credit over five years instead of the year that they placed the building into service.

Do Your Homework

While your business undoubtedly has some unique circumstances that may govern the relevance of the above tax credits and tax abatements, it is in your best interest to at least consider whether some (or all) of them apply to you. Yes, it may take some time to do your research and consult with all necessary parties within your organization. But having said that, doing your homework now can help you and your organization retain some significant capital for the future. 

Once again, if you have any questions about the applicability of any of the above credits or abatements, we encourage you to speak with your accountant or legal counsel. However, by studying and analyzing the credits and abatements mentioned above, you will be much more prepared to have conversations with those professionals and to adjust your organization’s strategy going forward.

If you're interested in Georgia-specific tax abatements and credits, read about the local tax breaks here.