Some minority-owned businesses may find themselves eligible for certain tax breaks if they’re located in distressed areas or if they’re just getting started in business. They may also benefit from investments made by those seeking a tax break.
New Markets Tax Credits
New markets tax credits are not aimed at minority-owned businesses directly, but rather at people who invest in low-income communities. This program permits any taxpayer who invests in a designated community development entity (CDE) a credit against their federal income taxes.
The credit received is equal to 39% of the amount invested and can be claimed over seven years. Investors who claim the tax credit must wait the full seven years before they can cash out or redeem their investment with the company.
Federal Tax Breaks for Businesses in Distressed Areas
The government offers certain tax breaks to companies that operate within economically distressed areas, with the hope of attracting more businesses to those areas. It is important to note that these tax breaks are available to all businesses that relocate to those areas, not just minority-owned businesses. Such tax credits include: the Empowerment Zone Employment Credit ($3,000 per eligible new hire), Capital Gain Exclusions, and First-Year Expense Write-Offs.
State Tax Breaks for Companies in Distressed Areas
Many states also offer tax breaks for businesses operating in distressed areas, and state tax credits similar to the New Markets Tax Credit are available for investors who invest in low-income communities.
Tax Credits for Employing American Indians
Businesses that employ workers who live on or near American Indian Reservations are eligible for the Indian Employment Tax Credit. This credit is equal to 20% of all qualified wages.
If you’re a minority-owned business, speak with your tax accountant to learn more details about the tax credits you qualify for, so you can take advantage of all the credits you’re due.
Get more helpful insights in these related articles:
- Resources for Minority-Owned Businesses
- Banks and Minority-Owned Businesses: Lending a Helping Hand
- Mentorship May Be Just as Vital as Funding for Minority Entrepreneurs
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