Impulse or Accelerator: Are Tax Incentives in Your Strategic Planning Arsenal?
When it comes to tax incentives is your organization falling into the trap of the impulse-buy? Did you scramble to make a significant purchase in December just to qualify for a tax break?
Rather than waiting to jump on a "good deal" at the last minute, start your stimulus shopping now for an incentive that will accelerate you organization toward meeting a strategic objective in 2013.
First, check your ABC's.
Accelerator or impulse-buy:
- Will it support a strategic objective?
- Do you have a reinvestment plan for the tax savings?
- Does the reinvestment plan itself meet the accelerator test?
Benefits & Risks -
- Does it provide short and long term benefit to the organization?
- Are there significant risks/additional burdens on the organization as a result?
Cash Considerations -
- Do you have the necessary uncommitted cash (short term and long term)?
From the recently extended American Taxpayer Relief Act of 2012 here are a few of the key Business Tax Provisions your organization may want to consider.
Sec. 179 and Bonus Depreciation:
Sample Strategic Initiative: Upgrade current equipment to control cost and/or improve cycle time
Benefit: Greater tax deduction in year of purchase
Risk: Taking a big deduction now leaves less offsetting expense in future operational years; especially critical if you expect net profit to increase as a result of the purchase
Work Opportunity Tax Credit (WOTC) and Veterans Opportunity to Work VOW:
Sample Strategic Initiative: Enhance/expand skilled workforce to pursue new market/opportunity
Benefit: Tax credit per employee helps offset cost of onboarding
Risk: The same reasons an employee may be eligible for the program may make them a risk as a new hire
Research & Experimentation Tax Credit (aka R&D Tax Credit, Credit for Increasing Research Activities):
Sample Strategic Initiative: Increase in systematic technological/scientific research and development to improve the quality of a business component.
Benefit: Formula based tax credit in addition to deduction of certain related expenditures
Risk: "Qualified research expenses" are subject to interpretation and there are numerous eligibility considerations
New Markets Tax Credit Program:
Sample Strategic Initiative: Investment in low-income communities to further a particular cause/achieve a particular result
Benefit: Tax credit based on investment, investment in non-real estate businesses allowed
Risk: This is not to be confused with a charitable donation; you should be in it for the long term as your investment can't be redeemed prior to the seven year term of the credit
Remember, just because it is on sale, doesn't mean you need it. Stick with your strategic objectives and you can confidently sort the accelerator from the impulse purchase.
Looking to accelerate your organization? Contact Strategy1, our business boosting experts are skilled in identifying, designing and implementing the right solution for you!
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