Tap overlooked tax breaks to help small business owners

Financial advisors and tax professionals with small business owner clients should ensure they  have considered every possible break that could help the bottom line, according to one expert.

The deduction for qualified business income of pass-through entities, incentives for energy efficient renovations, opportunity-zone credits, veteran-hiring subsidies and advantageous treatment of research and development costs represent only a few areas in which entrepreneurs may find savings, according to Michael Baynes, CEO of Clarify Capital, a private credit brokerage that assists small- and medium-size business in nonbank financing. 

Baynes often suggests that small business owners speak with a certified public accountant or another professional about breaks, credits or incentives available to them in the tax code in addition to or in lieu of getting a loan after hearing "their actual pain points," he said in an interview.

"Businesses come to us all the time because they're looking to grow and expand," Baynes said. "More of them than not are not aware that these types of credits exist, and they're not asking the right questions to their financial planners, CPAs and accountants."

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A package of extensions of breaks and credits for parents and business owners remains tied up in the Senate, and high-income partnerships face a higher likelihood of audits by the IRS, yet tax expenditures remain the most costly part of the federal budget, according to an analysis last month by the Peter G. Peterson Foundation, a nonpartisan fiscal watchdog group. At least 35% of households with $200,000 in income or above itemize on their tax returns — a share that is likely to go higher if the hiked-up standard deduction and lower top individual rates from the Tax Cuts and Jobs Act expire at the end of next year.

Strategies such as the qualified small business stock exemption carry some complications that require professional assistance, but the tax system encourages entrepreneurial investment. For example, simply renovating an office or store could bring tax advantages, according to a blog post earlier this year by Holyoke, Massachusetts-based Meyers Brothers Kalicka Certified Public Accountants.

"Is your small business looking to downsize to new digs now that you have more employees working remotely? Or have you returned full-time to your existing business premises?" the blog read. "In either case, you may find that some renovations are needed to bring the place up to code. If your business makes specific accommodations for disabled individuals, you may qualify for a sizable tax credit. In fact, the disabled access credit may essentially cut the costs of some renovations in half."

Research and development tax credits, green energy incentives, employer breaks and state and local programs are a few of the "commonly overlooked" areas for many business owners, according to another analysis last month by Sharvil Sheth, a Chicago-based director with top 25 accounting and consulting firm Armanino.

"Are you leaving easy money on the table? Probably — in the form of unclaimed tax credits that would reduce the amount you owe in taxes," Sheth wrote. "That's money that could increase your profitability and provide a competitive edge by funding additional technology, staff and strategic initiatives. Yet fewer than 30% of eligible small businesses claim the research and development tax credit, for example, and it's just one of many credits that business leaders often leave behind."

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Small business owners speaking with a professional from any field that affects their company should be sure to "pick their brain about what's going on currently with your business" to see what may apply to their situation, Baynes said. His "biggest advice to business owners" is that, "If you don't ask, you won't find out," he said.

"You need to be inquisitive with the people that you work with and the people who specialize in these things," Baynes said. "I've always thought that you don't get things in life unless you speak up and advocate for yourself. So I think that goes for business owners as well."