Tax incentives and credits can be powerful tools for lowering your organization’s tax burden. However, there are so many different programs and opportunities that it’s possible for even the most experienced controllers and CFOs to overlook some of them. Here is a look at some of the incentives and credits financial professionals often overlook:
Research & Development (R&D) Tax Credit
The federal R&D tax credit can make a huge impact on your company’s tax liability. This crest offers a dollar-for-dollar decrease in tax liability for qualifying domestic expenses. To qualify, expenditures typically include the development, design, or optimization of any of the following:
- Products
- Techniques
- Processes
- Software
- Formulas
If your company engaged in R&D in the previous tax year, it’s important to review your domestic expenses for qualifying purchases. Moving forward, ensure that the company closely tracks all domestic expenditures used toward R&D projects so it can take advantage of dollar-for-dollar tax reduction opportunities.
Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit was designed to encourage businesses to hire individuals from groups that have historically faced barriers to employment. The WOTC was extended to December 31, 2025, as part of the 2021 Consolidated Appropriations Act.
Your organization can claim up to $6,000 of wages paid to an individual who meets all three of the following criteria:
- Is in their first year of employment
- Is a member of a targeted group
- Works at least 400 paid hours for your company
However, your organization cannot apply the WOTC for individuals who are rehired, even if they meet the other two conditions.
Employee Retention Credit (ERC)
The Employee Retention Credit (ERC) was part of pandemic-related relief programs. While the credit is no longer being offered for new tax years, your business can still retroactively apply the tax credit for any eligible quarters through April 15, 2025.
The ERC can reduce payroll taxes for any eligible employee who was retained during the program period. If the credit is greater than the amount of payroll taxes your organization paid for that person, then a refund will be issued.
Section 179 Deduction and Bonus Depreciation
If your business invested in equipment and technology over the past year, it can take advantage of Section 179 deductions to decrease its tax liability. This incentive allows your business to:
- Deduct the full purchase price of qualifying assets the year they are placed into service
- Write-off bonus depreciation for new and used assets
Allowing bonus depreciation claims provides an additional write-off. This can drastically decrease your company’s tax liability and encourage investments in infrastructure upgrades.
State and Local Tax (SALT) Deductions
Currently, the Internal Revenue Service does not place any caps on state and local tax deductions for C corporations. Make sure that your finance team has an accurate accounting of all state and local taxes that the business paid during the previous tax year. These deductions are particularly beneficial for organizations that operate in tightly regulated industries.
SALT deductions allow the organization to reduce taxable income at the federal level while also minimizing double taxation. Taking advantage of these opportunities enhances cash flow management for businesses operating in high-tax states.
Opportunity Zone Investments
Opportunity Zones are designated distressed areas throughout the United States. These zones were created as part of the Tax Cuts and Jobs Act of 2017. There are thousands of zones in all 50 states and D.C. Five U.S. territories also received this designation.
Investing in Opportunity Zones allows your business to defer capital gains taxes when reinvesting in designated areas. The company can reduce its tax liability for a period of five to ten years. If your business is looking to expand to new markets or open additional locations, prioritizing Opportunity Zones represents a tax-friendly approach.
Energy Efficiency Tax Credits and Deductions
The IRS also offers tax credits and deductions for qualifying green energy investments. Both new construction properties and existing buildings that have been retrofitted are eligible. If your organization built or retrofitted a commercial property to make it more energy efficient, it may be able to apply for a credit that is the lesser of the following:
- The cost of the building
- The savings per square foot
Savings are calculated at $0.50 per square foot for structures that achieve a 25% energy savings. If your building exceeds the 25% threshold, it is eligible for an additional $0.02 per square foot of deductions for each percentage point above that threshold. The maximum deduction allowed using this formula is $1.00 per square foot.
Maximizing Savings Opportunities This Tax Season
Overlooking even a single incentive or credit that your business is eligible for can result in missed opportunities for significant savings. It’s important that your business takes advantage of all eligible incentives while also prioritizing corporate tax compliance.
As a financial leader within your organization, you have a chance to put your business in a stronger financial position this tax season by identifying and applying for these programs.
