Increased profitability is the name of the game for all companies, but especially those in the construction, manufacturing and real estate industries. While there are many ways to enhance profits, including cost management, pricing changes and even outsourcing, it’s important not to forget tax (incentive) planning. Leveraged as part of an effective tax plan, tax credit planning allows a company to identify tax incentives for everyday activities. While most are aware of the common incentives, fewer may be leveraging the robust incentives offered through the Los Angeles Empowerment Zone (EZ) Program. This program offers employment tax incentives, increased 179d deductions and special financing options for the purchase of qualifying property. To help clients, prospects and others become aware of the benefits of this program, JLK Rosenberger has provided key facts and related benefits below.
What is an Empowerment Zone?
An EZ is a designation issued by the federal government to identify areas that have demonstrated economic distress. Generally, these areas are characterized by high unemployment, a declining population, increasing poverty rate and divestment by businesses. To help revitalize economic growth in these areas, the federal government offers incentives to businesses for qualifying business activities. To determine if your company is located within an EZ, click here to conduct a search.
Empowerment Zone Incentives
- EZ Employment Credit – Qualified employers can receive a wage credit of up to $3,000 when they hire employees that live and work within the EZ. The credit is equal to 20% of the first $15,000 of each qualifying employee’s qualifying wages. A “qualifying employee” is defined as one that lives within the EZ and performs all or a substantial amount of services within the EZ for the company. It’s important to note that the credit can be taken for both full- and part-time employees. To claim the credit, the employer must verify that the employee’s residence is located within the zone.
- Enhanced 179d Deductions – This tax deduction allows a business owner to recover part or all of the cost of certain qualifying properties by deducting the cost in the year the property is placed into service. The normal limit of the deduction is $500,000, but for EZ companies, the limit is increased to $535,000 as long as certain criteria is met. The recapture rules of Section 179 apply when qualified property is no longer being used in an EZ by an EZ business.
- Work Opportunity Tax Credit – A wage credit of up to $2,400 is available for qualified employers for each new qualifying employee hired between the ages of 18-39 who lives within an EZ. There is also a Summer Youth Designation, which allows a tax credit of up to $1,200 for a new employee aged 16-17 who lives within an EZ. The credit is equal to 40% of the first $6,000 of a “Designated Community Resident” salary and 40% of the first $3,000 of a summer youth salary.
- EZ Facility Bonds – This investment incentive provides low interest bonds to businesses to help finance the purchase of qualified zone property. The bonds are issued by state and local governments and may not exceed $230M.
- Rollover of Gain on Sale of EZ Assets – A rollover incentive is available to qualifying companies that sell a qualifying asset held for one year or longer. EZ companies may be able to postpone some or all of the gain that would normally need to be recognized on income taxes, assuming that the appropriate conditions are met. It is important to note that the gain is recognized as the amount realized on the sale that exceeds the cost of EZ assets (replacement property) purchased during the 60-day period that begins on the date of the sale.
The incentives offered to EZ companies offer significant savings if properly leveraged. If you have questions about whether your company qualifies or how to take advantage of these incentives, JLK Rosenberger can help. For additional information, please call us at 949-860-9902 or click here to contact us. We look forward to speaking with you soon.