4 Tax Tips For Businesses in Empowerment Zones

July 30, 2021

California empowerment zones include Los Angeles (city and county), Fresno, Santa Ana, and the Desert Communities that are part of Riverside County. If you are a business owner with an operation located in one of these empowerment zones, it is essential to know what tax credits are available to you. Review tips from your Encino tax consultants to ensure you get the most out of each tax season. 

Learn About All Applicable Tax Breaks

Review every empowerment zone tax break you are entitled to, such as the Empowerment-zone employment credit providing $3,000 in credits per qualified employee. You might also be able to utilize the special capital-gain exclusion for small businesses with stocks in corporations that are also within the empowerment zone. However, you must hold stock with one or more of these corporations for at least five years to use the exclusion. 

If your empowerment zone-based business is in its first year, the IRS allows you to deduct up to $35,000 for machinery and equipment purchased for commercial purposes. 

Know What a “Qualified Employee” Means

Make certain you understand the “qualified employee” definition to avoid tax problems. A qualified employee is any individual who works for your company part or full-time and has a main residence within the empowerment zone. Such employees also perform their job duties within said zone. Employees who do not qualify include those who are fired because of poor conduct, individuals who are your relations and or dependents, and people who have worked at your business for 90 days or less. An employee with stock and capital ownership does not qualify either. 

File the Right Form

Fill out Form 8844 to claim your empowerment zone tax credits. Send the form with your other tax documents online or through regular mail, whichever you prefer. If you are not sure how to fill out the form or have any other questions related to empowerment zone business taxes, schedule a consultation with your accountants in Los Angeles

Deduct All Other Expenses That Apply 

Don’t forget to deduct other applicable business expenses unless you are taking the general deduction. Common expenses that lower income tax amounts include business marketing materials, meals and snacks, travel costs, office rental or mortgage costs, internet and phone bills, legal fees, equipment depreciation, salaries and benefits, moving expenses, and business insurance. 
For help with tax preparation, contact Wallace & Associates, your Los Angeles accounting firm.