What is an Empowerment Zone?

July 2, 2021

If you are a business owner, your enterprise could be located in an empowerment zone (EZ) and eligible for tax benefits. Learn what your accountant service in Los Angeles wants you to understand about these zones to help streamline tax preparations. 

Empowerment Zones, Defined

An empowerment zone is an impoverished area that receives aid from the federal government. The idea is to “lift” the community out of poverty by supporting business incentives and subsequently creating jobs. Empowerment zones have existed since the Empowerment Zones and Enterprise Communities Act of 1993 was passed. For communities to qualify, they have to feature extreme levels of poverty, unemployment, and emigration, as well as the “opportunity for regrowth.”

Tax Incentives 

Businesses in empowerment zones might qualify for tax credits, as well as low-cost loans available through related bonds. For a business to qualify, the owner must employ at least one qualified zone employee, or individual whose main residence is in the empowerment zone and performs work for the employer within the EZ. Employees who do not qualify include: 

  • Employer dependents or relatives
  • Those terminated for misconduct on the job
  • Those who own over 5% of the business’s stock, including voting and outstanding stock, or own over 5% of the profits interest or capital
  • Those who have worked for the employer for less than 90 days at tax time
  • Those who sustain disabilities before the 90th day of employment

Empowerment Zones in California

Numerous communities and counties in California are designated empowerment zones, including Fresno and Santa Ana, and the city and county of Los Angeles. A section of Riverside County known as Desert Communities is also considered an empowerment zone. Many other rural and urban areas throughout the country are EZs as well. 
File out Form 8844 to receive your empowerment zone tax credit. Attach the form to your income taxes; if you need assistance with filing, contact your Encino tax consultants at Wallace & Associates. The Los Angeles accounting firm provides tax preparation services among many others to help businesses throughout the region thrive and avoid audits. Make an appointment with the consultants today to get started.