Taking advantage of tax incentives makes good sense for businesses. One reason a business owner should use tax incentives is to help underwrite the cost of maintaining its existing customer base, while continually striving to increase it. Whether a sole proprietorship, partnership, corporation, S corporation, or limited liability company (LLC), certain customer-based tax incentives may help a business reduce taxes.
The first priority for the owner of a business enterprise is to reduce taxable income by taking all of the deductions to which it’s entitled as business expenses. If the expense is ordinary and necessary to the business, it may be deducted under I.R.C. § 162. As defined by the Supreme Court:
- An expense is ordinary if it is customary or usual and of common or frequent occurrence in the taxpayer’s trade or business. Deputy v. du Pont, 308 U.S. 488, 495 (1940);
- An expense is necessary if it is appropriate and helpful for the development of the business. Commissioner v. Tellier, 383 U.S. 687, 689 (1966).
Other tax incentives that are customer-based include the following:
Disabled Access Credit
Business owners with expenses related to providing access to a business for people with disabilities may be eligible for the Disabled Access Credit. The maximum credit available is $5,000 on $10,000 of expenditures made by businesses. As well as simply being a good tax reduction idea, it ensures compliance with the Americans with Disabilities Act, while also avoiding any potential penalties. Small businesses may take a federal income tax credit of up to $5,000 annually based upon 50% of costs between $250 and $10,250 to make improvements that make a business more accessible to the disabled.
Deduction of Goodwill Advertising
Sponsoring teams in community sports leagues and regularly participating in local charity events and giveaways may promote a business and attract new customers. Such efforts are deductible as advertising costs of the business, and there’s no limit on this deduction or a charitable contribution. However, there’s no deduction for the value of any time and effort expended on the event or sponsorship. Reasonable donations of money and inventory may be deducted depending on the nature of the activity.
Deduction of Networking, including Email Marketing
The costs of networking and using email to market a business and send communications to a prospective customer list may be deducted in their entirety. Networking increases business contacts and builds relationships that may eventually lead to the referral of new customers. The costs of networking activities, such as membership fees for joining the local chamber of commerce or service organization, such as the Rotary Club or Kiwanis Club, are fully deductible.
A tax professional may evaluate anyone’s situation to help determine the wisdom of any year-end tax savings moves. If you are an individual or business in the New York or Tri-State area and have any question about taxes, especially in planning ahead for the next filing season, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
