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Tax Credits: An Opportunity (with a Price)

Posted 8:53 PM by

Federal and state tax credits offer business owners incentives for their business activity that, effectively, provide dollar-for-dollar reimbursements of qualified expenditures. Other incentives provide special deductions that accelerate the recovery of investment in assets. These incentives target various areas of the U.S. economy but focus especially on technology, life sciences, high-tech manufacturing, rehabilitation of real estate, research and experimentation, and clean energy.

At first blush, tax credits and special deductions would seem to provide value that owners and decision-makers would eagerly pursue. However, a recent article in the Wall Street Journal discusses taxpayer disenchantment with tax credit programs, especially among owners of small to mid-size businesses. Citing the cost of compliance and the "hassle factor," many business owners are choosing not to take advantage of available credits and deductions.

It may be a costly mistake, however, for financial decision makers to dismiss the benefits of tax credits and special deductions, even in light of compliance costs. A qualified advisor can help business owners identify opportunities and, in most cases, quantify the value of credits and incentives prior to the investment of significant money and time. When the incentive allows, business owners should expect to receive an "up-front" cost/benefit assessment. And, unlike many compliance requirements, credits and incentives will generally pay for the cost of compliance many times over.

Take, for example, the tax deduction for energy-efficient buildings (sometimes called the EPAct deduction or 179D deduction) discussed in a recent article, originally published in the Wall Street Journal"Firms Pass up Tax Breaks, Citing Hassles, Complexity." This deduction provided owners a current year deduction for certain expenditures that would otherwise be depreciated over the life of the building in which they are installed. While much is discussed about the potential costs of demonstrating eligibility for this deduction, for every $10,000 of qualified expenditures deducted the net present value of such deduction can exceed $2,000. The ability to deduct a $100,000 lighting upgrade at a net present value in excess of $20,000 would make a strong case for spending a few thousand dollars on an advisor's fee.

The moral of this story is not to discount or dismiss tax opportunities without first assessing their potential value. Only then can an informed decision be made. 

About Katz, Sapper & Miller
KSM is a nationally recognized consulting, tax, and audit firm. Through our deep experience across multiple disciplines and industries, we leverage emerging technologies, combined with our people’s differing perspectives, ingenuity, and creativity, to help our clients solve their most difficult challenges.

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