Enterprise Zone Tax Credits
Enterprise Zone Tax Incentives
An Enterprise Zone Success Story
The purpose of an enterprise zone is to encourage business development and employment in a specific geographic area. Businesses located within an enterprise zone, or that choose to relocate within its boundaries, can take advantage of a variety of tax incentives. Savings can be substantial and can have a dramatic impact on the profitability of your business. In addition, an improved cash position offers you a competitive advantage in the marketplace.
The Santa Ana Enterprise Zone was designated by the California State Trade and Commerce Agency and became operative on June 8, 1993. The program is administered at the local level by the City of Santa Ana's Economic Development Department, under the immediate supervision of Patricia Nunn. For further information, check their web site at www.ci.santa-ana.ca.gov.
The team members at Elliott, Lewis, Lieber & Stumpf (ELLS) are recognized experts in identifying and capturing Enterprise Zone incentives for our clients. ELLS was named Advocate of the Year in 1997 for the Santa Ana Enterprise Zone, in recognition of the many hours we spent promoting the zone and training zone businesses to identify and use EZ credits. We were further recognized for Outstanding Achievement and named Zone Advocate of the Year for the State of California by the California Trade and Commerce Commission.
Look to the team at ELLS for excellence in Enterprise Zone issues.
Enterprise Zone Tax Incentives
Following are brief descriptions of the five tax incentives available to a business located within an Enterprise Zone. For instance, you may be able to earn tax credits every time you hire an employee or purchase new equipment. As with all government programs, there are qualifying circumstances you must meet. Positioning your company to meet these qualifications can prove to be certainly worth the extra effort. Our commitment is to guide you in the right direction and assist you in both knowing about, and being eligible for, these tax savings.
1. Hiring Credits
The hiring credit applies to all businesses located within an Enterprise Zone. The maximum allowable credit, which is computed from 1½ times the prevailing minimum wage of $6.75 is $10.12 an hour. Based on 2080 hours per year (40 hours per week), a company will earn the following credits:
| For One Employee | Tax Credit | Income
Sheltered |
| Year 1 | $ 10,525 | $ 113,172 |
| Year 2 | $ 8,420 | $ 90,538 |
| Year 3 | $ 6,315 | $ 67,903 |
| Year 4 | $ 4,210 | $ 45,269 |
| Year 5 | $ 2,105 | $ 22,634 |
| TOTAL | $ 31,575 | $ 339,516 |
This is for just ONE employee. If a company hires 5 qualifying employees, their credits would total almost $53,000 the first year, and this would shelter over $565,860 in income for that year. It compounds quickly ... just 5 qualified, vouchered employees over a 5-year period will shelter $1,697,580 in income. Now, that's impressive!
2. Sales and Use Tax Credit
Enterprise zone businesses may reduce state taxes by the amount of sales and use tax paid on specific data processing and communications equipment purchased for exclusive use in the enterprise zone. In addition, manufacturing companies qualify for sales and use tax credits for certain machinery and machinery parts purchased for exclusive use in the enterprise zone. ). To qualify for the credit, there are certain restrictions on how the machinery or part is used. It is important to consult the experts at Elliott, Lewis, Lieber & Stumpf before you make a qualifying purchase Where you purchase it, for example, can make the difference of qualifying or not qualifying for this credit
3. Business Expense Deduction
The cost of qualified property purchased for the exclusive use in an enterprise zone may be deducted as a business expense in the first year it is placed in service. This means you can elect to either depreciate or expense the qualified property. Which is the best tax strategy for you? The tax strategies you develop this year can have far-reaching consequences for your business. For the best advice, call the tax strategy specialists at Elliott, Lewis, Lieber and Stumpf at 714.569.1000, or email your question to: info@ellscpas.com for a prompt reply. A relatively small investment now for expert advice can save you many thousands of dollars.
4. Net Operating Loss (NOL)
A business located in the enterprise zone may carry forward 100% of a net operating loss to reduce taxable enterprise zone income. The deduction may be carried for up to 15 years. You can go back and claim a Net Operating Loss from a previous year even though you did not claim it on your original return, providing you qualify under the guidelines. If you suspect this may be your situation, then the sooner you establish your claim, the better Call the experts at Elliott, Lewis, Lieber & Stumpf at (714) 569-1000, or email your question to: info@ellscpas.com for more information about how to establish your claim.
5. Net Interest Deduction for Lenders
A "lender" is defined as a bank, individual or corporation who lends money for use by a trade or business located solely within an enterprise zone. The money must be used strictly for the business activity in the enterprise zone. The lender may not have any equity or other ownership in the trade or business. Many lenders, especially those not located within the enterprise zone, may not be fully aware of this tax savings advantage. So, before you call your lender, call the experts at Elliott, Lewis, Lieber & Stumpf to help you structure your loan and negotiate favorable terms to meet your financial objectives.
An Enterprise Zone Success Story
Are you sure you are getting the full benefit of the credits the California Enterprise Zone program offers you and your company? A Santa Ana manufacturing company thought so, but upon reviewing their situation...
...we discovered $3,975 of credits they had overlooked claiming on their state corporate income tax return!
The situation was this: three eligible employees were hired by them in the month of December and the company took the 50% enterprise zone tax credit for that taxable year. The following taxable year, the company took a rate calculated at 40% (for the second year of employment). Overlooked was the fact that the 50% rate applies to the first 12 months of employment and has nothing to do with the actual calendar year.
ELLS found this error and applied for the correct amount of hiring credit for the second taxable year. This saved our client $3,975 in taxes!
When you look to utilize the enterprise zone advantages to reduce your state income taxes, look to ELLS, your Santa Ana CPA firm. We are well versed in enterprise zone qualifications and may be able to find ways to save you additional money as well.
Every business can afford a good accountant! Call us today! 714.569.1000 or email your question to: info@ellscpas.com.
