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June 2019

Ways to Go Green and Save Your Business Money

Making your business environmentally friendly isn’t just good for the Earth it may also be good around tax time. That’s because the IRS has a lot of tax credits and deductions in place for businesses that make an effort to go green and encourage their employees to do the same.

Encourage Bicycling to Work

Under the Tax Cuts and Jobs Act of 2018, employers are allowed to deduct some bicycle commuting reimbursements that they give to their employees as business expenses. From now through 2025, you can reward your employees for bicycling to work, and then take a tax deduction as a result. In order to qualify, you must reimburse the employee through their wages.

Consider Green Energy Sources

The Business Energy Investment Tax Credit will reward you for investing in energy-saving modifications on your business. When you work things like solar panels, fuel cells, small wind turbines or geothermal systems into your business or office building, you may qualify for a tax credit.

The credits are starting to phase out and will almost completely expire in 2022. In 2019, you have the opportunity to get anywhere from 10% to 30% in tax credits. Check the Energy.gov website for an idea of what kind of credit your business is eligible to receive.

The credit only applies to “investment credit property”, in other words, something that can be depreciated or amortized. You must also own the equipment or property or, in the case of the equipment, you have built it yourself.

Consider LEED Certification

If you own your own building and go green enough, you may qualify for Leadership in Energy and Environmental Design (LEED) certification. The rating system was created by the U.S. Green Building Council.

While the tax benefits are limited for LEED certification (the aforementioned Business Energy Investment Tax Credit is one of them), according to the U.S. Green Building Council, LEED certified buildings lease faster, have higher resale prices and use less energy, water and other resources.

Make Energy Saving Changes Within the Office

This one isn’t really a tax savings tip, but it is a money saving one. The next time you’re shopping for new light bulbs for the office, choose Energy Star qualified ones. Or choose Energy Star approved appliances for the break room. Energy Star is a government-backed agency that backs the most energy-efficient products on the market.

In other words, use the money you already set aside for office supplies and appliances and buy Energy Star approved items. Not only are you lowering your utility bill, but in the case of appliances, you may also qualify for money back rebates offered for purchasing Energy Star appliances.

Check to See What Your State Offers

Depending on your state, you may also qualify for state tax deductions or credits that overlap with the ones you receive at the federal level. The website Dsire USA breaks down every state’s energy policies and incentives. Check the site to make sure you’re receiving the full benefit of any environmentally friendly changes you make to your business.

As with all the advice we offer, you should talk with a tax professional before you make a decision about what’s best for your business. The Tax Credit Group is happy to offer any support it can for your specific situation. Just send us a message and we’ll cater our advice to your particular situation.

How Small Businesses Can Take Advantage of Tax Savings when it Comes to Retirement

According to the Small Business Administration’s latest survey, there were approximately 30.2 million small businesses in the U.S. in 2018 with a total of 58.9 million employees. That means a majority of those small businesses were run by just one person, maybe two at the most.

Small business owners are stranded in a weird limbo when it comes to retirement. Unlike regular employees who have a steady paycheck that they can draw from to stash away cash for retirement, small business owners operate differently. The good/lucky ones can take a steady paycheck from the company. The others may be struggling from month to month and see their pay struggle as well.

So what are the retirement plan options for small business owners and how can they stretch that money as far as possible through tax credits and tax deductions.

Traditional IRA

Tax Benefits: These are pre-tax funds that go into a Traditional IRA so you’re making your money go further in the beginning. Just remember, you will be taxed when you withdraw those funds. In some cases, you can deduct a portion or all of the money you contribute to your Traditional IRA from your taxes.

Limitations: The IRS is constantly updating this, but for 2019 anyone under the age of 50 can contribute up to $6,000 to their IRA. Anyone over the age of 50 can contribute up to $7,000.

Roth IRA

Tax Benefits: None when you start out because you’re depositing funds that have already been taxed, however, when you retire the funds are withdrawn from the plan, tax-free.

Limitations: The amount you can donate to your Roth IRA will depend on how much money you make and whether you file your taxes single, married or something else. The upward limitation is $6,000 for anyone under the age of 50 and $7,000 for anyone over the age of 50, though that limit can be decreased or even be zero if you make too much money.

The Roth IRA is really for small business owners or employees who don’t make a lot of money and remember in the case of small businesses, a lot of time the income from the small business is also counted as your personal income.

SEP IRA

A SEP IRA or Simplified Employee Pension IRA is a method of saving for your employees and yourself. In many cases, it may be just you as a small business owner.

How is it different from a Traditional/Roth IRA?

While the term IRA is used, the SEP IRA is very different from a Traditional/Roth IRA. The SEP IRA is a pension plan, which means the company is making a contribution on behalf of the employee. With small businesses, this is often the same person, but it is an important distinction.

Additionally, the upward limit of what can be contributed to a SEP IRA can be much higher than what can be contributed to a Traditional/Roth IRA.

Tax Benefits: The biggest benefit of the SEP IRA is that the company can take a tax deduction for contributions. Because this is along the lines of a pension plan, this also includes deposits made into any employee accounts.

Requirements: As with anything having to do with taxes, the more deductions you’re allowed, the more hoops you have to jump through. The SEP IRA must be registered with the IRS, so you’ll have to fill out a form. You’ll also need a written agreement with all of the employees involved and you’ll need to set up IRA accounts for them.

You can find a full list of the requirements here.

Limitations: Every employee must receive the same percentage of compensation in a SEP IRA and that compensation is capped at $56,000 (for 2019) or 25% of annual pay, whichever is smaller. SEP IRAs are only available to people 21 and older and they must have worked for your company for three of the last five years.

In other words, this is an option for more established businesses, not new ones.

You can see a full list of the rules here.

Other Benefit: According to Investopedia, the real benefit of the SEP IRA is the ability to contribute based on the health of the business. If the business is having a down year, you can skip the contribution to the SEP IRA entirely.

One-Participant 401(k)

When you think of a 401(k) plan, you usually think of something that’s offered by large corporations and businesses, but the IRS actually has what it calls a one-participant 401(k) plan or Solo 401(k).

It’s a plan specifically set up for small business owners with no employees, though they can add their spouse to the plan.

Tax Benefits: Whatever your company matches in contributions to the 401(k) plan can be deducted from your taxes. That means you may put $5,000 into the 401(k), use company funds to match it up to 25% of the contribution and then deduct that match against your taxes.

Limitations: The real downside of this option is that you cannot have any employees. If you do, it immediately disqualifies you from this option.

Other Benefit: The true benefit of a 401(k) plan compared to other plans is the upward amount you are allowed to contribute. You can put up to $56,000 or 100% of your salary (whichever is less) into your retirement, plus your company can match up to 25% of that contribution, which means more savings when times are good.

Other Plans

There are other options to employers such as the Simple IRA or Defined Benefit Plan, but both can be significantly more costly to small businesses and usually aren’t options unless your business is well established and has great cash flow.

Additional Tax Benefits

No matter what plan you choose, remember that you may be able to qualify for tax credits on the cost of starting up the retirement plan. The IRS offers tax credits for the first three years of startup costs, up to $500.

When you’re running a small business, every penny counts, so be sure to look into that as well.

If you’re a small business owner looking to start up a retirement plan for yourself or your employees, make sure you talk to your financial advisor first. You can also reach out to us here at The Tax Credit Group. We’re always happy to help.

Alternative Motor Vehicle Tax Credits

When it comes to running a business, especially one that relies on transportation, it’s important that you take every advantage you can. It can be financially painful to purchase a new work vehicle every five to ten years and even more painful if you need to purchase more than one vehicle.

Luckily, the IRS gives you a chance to ease that pain just a little bit.

The Plug-In Electric Drive Vehicle Credit

The IRS created this credit almost 10 years ago as a way to incentivize people to purchase alternative motor vehicles. When it was initially launched, people who purchased plug-in hybrids or electric vehicles could receive a tax credit of anywhere from $2,500 to $7,500. That same credit applied to businesses.

But the IRS was smart, and it did not make the credits unlimited. Instead, it built into the system a phase-out for each manufacturer. Once the manufacturer sells 200,000 of the qualified vehicles, the credit has expired.

So, while the Prius and Volt are off the table, there are still a few vehicles that qualify for the credit in 2019. If they fit into the overall business plans, you should definitely take advantage. To find the latest updated list on the IRS website, click here.

An added bonus to this credit is that some states offer a separate tax credit as well. The Energy Sage website has the vehicle credit broken down by state. Click here to see if your state offers a separate tax credit.

As with all tax credits, there are a few other caveats. For one thing, you need to make sure that the vehicle is new and that you are purchasing the vehicle, not leasing it. If you’re leasing it, then the leasing agency (in most cases the dealership) is the one that has the right to claim the tax credit. You, of course, can work out a deal with the dealership to work that credit into the price of the purchase.

There are also mileage, fuel efficiency, and battery standards that the vehicle must meet in order to qualify as well.

One Purchase with Dual Benefit

Aside from the tax credit, there’s also the benefit of tax deductions. As a business owner, you know that assets like vehicles depreciate, which means you can write off a portion of the cost of the vehicle every year. Since tax credits and tax deductions are considered different items on a tax form, it’s possible to get a dual benefit from one purchase.

As with all advice provided on this blog, it’s very important that you talk to a tax professional about your specific situation. We realize that every company has different challenges and successes and what will benefit one company may not benefit another.

We here at The Tax Credit Group understand the intricacies of the tax laws and how to make them work to your advantage. Feel free to contact us at any time for a consultation.

How Spring Cleaning and Tax Deductions Go Hand In Hand

It’s springtime and for many people, that means spring cleaning. However, spring cleaning should not just be for your home, you should also think about extending it to your business. It’s tough to admit that the inventory that’s been gathering dust on your shelf is never going to sell, or the old business equipment that you upgraded last year really has no use anymore.

Saving it is taking up something even more valuable in your business, space. It’s time to be honest with yourself and admit, you’re never going to use it again, or in the case of old inventory, you won’t be able to sell it. But instead of trashing it, why not donate it and get a little bit of benefit after you say good-bye?

Tax Deductions for Property Donations

When it comes to the IRS, property isn’t just land, it’s items too. The IRS allows you to deduct what it calls the “Fair Market Value” (FMV) of property. FMV means what you could conceivably get for a piece of property if you sold it.

For example, you can’t donate a 1994 Ford pick-up truck in marginal condition and say it’s worth $10,000. You have to either provide proof that you made sufficient upgrades to the truck to make it worth $10,000 or prove that someone was willing to pay $10,000 to purchase the truck. It’s a lot of work and that’s a simple example.

To keep everyone from having to prove the FMV of the items they donate, the IRS gives you up to $500 in donations without requiring a form. Anything more than $500, you’ll need to fill out a Form 8283 and you’ll probably need to prove that your property is worth what you say it’s worth.

There are a lot of other factors that go into determining the FMV and some of them require appraisals before you donate. If you would like to see a more extensive write up on how to determine the FMV, the IRS has drafted this article.

Once you determine the FMV of your item, deducting it may have benefits to your company come tax time. It’s an easy way to make that unwanted property do some work for you.

What Else Can You Donate and Deduct?

Money – The value of this one is pretty easy to determine. It’s a dollar for dollar deduction, though there is a cap. That cap will depend on your company’s tax situation.

Time – The value of your time is not deductible. That means you can’t deduct $400 because you volunteered for four hours and you normally bill $100/hour. However, you can deduct “…certain expenses incurred and related to your volunteer work. For example, if you host a party or fundraiser for the organization, you can deduct the costs. Other deductibles include supplies (e.g. stationery), the costs of a uniform and telephone expenses.” (Per the Small Business Administration)

Ask the Pros

The IRS has a lot of forms and a lot of systems in place to make sure that if you’re taking a tax deduction because of a donation, you’re doing it the right way. Filling out a form is only one part of the process, you need to make sure you’re also providing the correct documentation for any deduction claims you’re making. Not only does this keep you within the boundaries of the law, but it also ensures that if you get audited you’re prepared with proper documentation.

As with any tax deduction, you should always, always talk to a tax professional before you make any moves. That person is going to know the ins and outs of the tax laws better than anyone, plus he or she will be up to date on any changes that may have happened recently.

We here at Tax Credit Group can help you through all of that. All you need to do is give us a call.

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