Even as signs of an economic recovery begin to surface, dealers have been left to wonder whether or not it is the right time to expand their business. Like all businesses, dealers must weigh the costs involved against the anticipated profitability that will be created. Federal, State and Local governments also realize the impact that growth and expansion can have on the economy and often provide support in the form of tax breaks and incentives to small businesses. Dealers should take the time to investigate what types of tax breaks and incentives are available to them. Often times they can be the deciding factor in whether or not it is feasible to expand.
Federal Incentives – The most recent incentive provided by the Federal government is the Hiring Incentives to Restore Employment (HIRE) Act. The Act provides two incentives for employers to hire. The first is a tax credit equal to the employer’s share of Social Security payroll taxes that an employer pays for new hires. This equates to 6.2% of the employee’s wages. The employee must meet certain qualifications in order for the employer to receive such credit. These qualifications include certification by the employee that they have not been employed for more than 40 hours during the 60 days prior to the start of employment, that they are not displacing an employee who is currently on the employer’s payroll and are not related directly or indirectly to the employer. The credit applies to wages paid after March 18, 2010 up to December 31, 2010. Credit for eligible first quarter wages will be applied on an employer’s second quarter payroll filing. For wages paid after April 1, the employer can adjust the payroll tax deposits to take the payroll tax forgiveness into account. The second part of the Act creates an incentive for employers to keep the new hires that are eligible under the first part. For every qualified new hire that is retained under the employer’s payroll for 52 consecutive weeks, the employer will receive a business credit related to each worker equal to the lesser of $1,000 or 6.2% of the qualified employee’s wages during the 52 week period. The only additional qualification is that the employee’s wages for the second 26 weeks of the 52 week period must be at least 80 percent of the wages paid during the first 26 week period.
State and Local Incentives – Many states, cities and towns also offer tax breaks in order to keep or attract businesses. For example, Massachusetts has the Economic Development Incentive Program (EDIP). Its goal is to work with businesses and local governments towards full time job creation, manufacturing job retention and private investment commitment. Businesses that qualify receive their incentives usually in the form of reduced property taxes and, in some cases, low cost financing. If a dealer is contemplating building, moving to a new facility or hiring additional employees, he/she should contact the regional Office of Business Development and local city/town officials to see what tax breaks are available. While we have specifically highlighted the programs in Massachusetts, other states and municipalities also offer similar programs.
Section 179 Election to Expense – The federal Government has extended the election to expense the first $250,000 of tangible personal property acquired by a business through December 31, 2010. These tax incentives will help to pay for any expansion of your business.
As dealers are now starting to see an increase in their business and profitability, the time to consider expansion may be now, especially with the tax breaks and incentives available that can help alleviate some of the costs that expansion requires.
For additional information regarding the automobile industry or Downey & Company, please email Paul McGovern at pmcgovern@downeycocpa.com.
