Elucidating Employment Tax Credits and Enterprise Tax Zones

Tax- planning and savings involve meticulous war- like planning to find niches and loopholes in the armor of your enemy- the regulations of taxation. Sometimes the policies can get so complex that most individuals and businesses tend to ignore it altogether. For example, Employment tax credits is one such benefit available that has got such prevalent misconceptions about the legislations surrounding it that  only 10% of the potential savings available to businesses from it are actually realized.  The tax-filers hired cannot be fully blamed as filing for such benefits involves knowing about different aspects which do not lie in the sphere of conventional accounting. A keen know-how of different areas like HR, payrolls and operations etc. apart from the government guidelines is needed in order to optimally use these deductions.

Employment tax credits are generally given out to motivate businesses to domestic investment for spurring infrastructural and economic development. It is a promotional tool for the government which is evaluated as per the parameters of enhanced employment generation, technological developments, and a wholesome development of the targeted population or region.  The activities that qualify for exemption are

  • Establishing a business in a target zone. It can be a metropolitan, industrial, or under-developed areas
  • Employing a select group of people
  • Investing in capital assets in the locality
  • Promoting technological development through research

The research for benefits such as these should be exhaustively carried out by professionals specializing in these items. It is unfair to put the responsibility of identifying specific tax benefit sources also on your tax-filers as they involve wholesome study and lengthy planning to avail future benefits as well. The expenses of hiring such professionals is also not a burden on entrepreneurs as the fees is usually a portion of the tax savings a business gets and is usually not to be paid until receiving a refund or realizing savings. The process can take a period of up to 2 months.

Enterprise Zone Tax credits is another such deductible tax policy which caters to specific regions or “ zones” and provide tax exemptions if qualifying activities are taken up in such places.  For example, Businesses located in Anaheim may save the amount they lose on State Income Tax by a certain margin of the salaries they pay to qualifying employees. Businesses have the ability to earn up to $ 37,400 for 5 years just availing these special deductions.

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