Last updated on June 12th, 2024
Recognizing small businesses are the backbone of the U.S. economy, the Federal and NY State governments offer many tax incentives to support growth, development, and sustainability. The first step to maximizing tax deductions (which reduce the amount of business income subject to taxes), credits (which reduce the amount of taxes you owe dollar for dollar), and other incentives is knowing which ones exist and may apply to your business.
Business Incentives
At the federal level, the Qualified Business Income (QBI) Deduction remains a significant benefit for small businesses. The QBI (also referred to as Section 199A) deduction allows eligible small business owners and self-employed individuals to deduct up to 20% of their QBI.
Then there’s Internal Revenue Code (IRC) Section 179. If you buy or lease (with qualified financing) appreciable business equipment, deduct the full purchase price (or lease amount) from your gross income. Eligible equipment can include computers, furniture, machinery, vehicles, and more. Plus, for 2024, there’s a 60% bonus depreciation to reduce your tax liability further.
You can also reduce your income tax liability with Section 174 tax credits for research and development. The tax credit is available to businesses of all sizes for qualifying research activities like software development, architectural design, product enhancements, and more.
As for New York, the Investment Tax Credit rewards businesses that invest in production property and equipment, providing a credit of 5% to 10% on their investments. Furthermore, the START-UP NY program creates tax-free zones for new and expanding businesses, offering a ten-year tax holiday on various state taxes to qualified businesses that relocate to these zones.
Hiring and Retention Incentives
The Federal Work Opportunity Tax Credit (WOTC) is available to businesses that hire individuals from certain groups facing barriers to employment like veterans, individuals on public assistance, ex-felons, qualified summer youth, and more. The WOTC credit equals 40% of the first $6,000 in qualified first-year wages. The maximum credit is $2,400.
New York State also offers a number of different tax credits for hiring employees from targeted groups. What’s more, the Excelsior Jobs Program provides refundable tax credits for businesses in certain industries that commit to invest in, hire, and retain employees in NY. Also, the Empowerment Zone Tax Credit provides an employer in a designated empowerment zone up to a 20% credit of the first $15,000 in annual wages paid to residents of the zone for services within the zone. Click here to learn more.
There are also incentives to help you retain employees. For example, under SECURE 2.0, you may be eligible to claim a tax credit of up to $5,000 for each of three years for the costs to start, administer, and educate employees about a SEP, Simple IRA, or other qualified plan. Under the Employer-Provided Childcare Credit, you may be eligible to receive a tax credit of up to $150,000/year for a qualified childcare facility, resources, and referrals.
Workforce Development Incentives
When you invest in developing your employees’ skills, you may be eligible for New York tax incentives. For example, the Employee Training Incentive Program provides a refundable tax credit of up to 50% of eligible training costs, as well as a tax credit of 50% of any stipend paid to an intern. The Empire State apprenticeship tax credit provides a credit of $2,000 to $6000 per apprentice per year (up to five years), with a higher credit available when the apprentice is a disadvantaged youth.
Energy Incentives
The Inflation Reduction Act (IRA), combined with New York State incentives, can help your small business adopt clean energy technologies and equipment and save on energy costs. For example:
- Energy Efficient Commercial Buildings. Receive a Federal tax credit of up to $5 per square foot for new construction or a retrofit involving lighting, heating, cooling, ventilation, hot water systems, and building envelop improvements. In addition, in New York, you may be eligible for a variety of equipment rebates for heat pumps, boilers, water control systems, HVAC systems, lighting, weatherization, and more, depending on your energy provider.
- New Electric Vehicles. Receive a Federal tax credit of up to $7,500 for vehicles under 14,000 pounds and up to $40,000 for larger vehicles. In addition, the Charge NY initiative offers up to $2,000 in rebates for new EV car purchases or leases.
- Vehicle Charging & Fueling Stations. Receive a Federal tax credit of up to 30% ($100,000 maximum) for installing a vehicle charging station. In addition, NYS offers up to a $2,000 rebate per port at workplaces plus an additional $500 per port if located in a disadvantaged community.
- Receive a Federal tax credit of up to 30%, plus another 40% in bonus credits if certain materials are mined, produced, or manufactured in the U.S.; if the business is in a low-income or energy community; and if labor requirements are met. Also, accelerate depreciation on installation costs. Combine that with potential NYS tax credits, financing, and incentives.
Click here to learn more. To find additional information on tax incentives click here and here.
This article highlights a sampling of the tax incentives available to support small businesses in New York. It’s important to recognize each incentive has its own eligibility requirements, guidelines, and rules. Still, with the new year barely under way, it’s a good time to consider how tax incentives may play into your financial strategy and support growth in 2024.
As always, it’s in your best interest to speak with a tax professional when it comes to any tax matters. RBT CPAs has been providing accounting, tax, audit, and business advisory services to businesses throughout the Hudson Valley for over 50 years. If you want to learn more about tax incentives and the implications of any move you make, please don’t hesitate to give us a call at 845-567-9000. We can be Remarkably Better Together.