If you operate a business that is open to the general public, you’re legally obligated to make the premises accessible to disabled people. Similarly, you might update the facilities for disabled employees in your office. At least you can salvage some tax benefits when you modify the building.
Strategy: Build your renovation plans around the “disabled access credit.” This credit is a dollar-for-dollar reduction of your tax bill. If you qualify, you can recover up to half of the cost! It’s not just limited to installing ramps and guardrails.
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Here’s the whole story: A small business is eligible to claim the disabled access credit for making business premises more accessible to disabled individuals. For this purpose, a “qualified small business” is an operation that had gross receipts of $1 million or less or one that didn’t employ more than 30 full-time employees in the preceding tax year. The credit can be carried back for one year and forward for up to 20 years.
How much is the credit? It’s equal to 50% of the first $10,000 of qualified expenses. (Actually, the first $250 of expenses is excluded, so the credit applies to the first $10,250 of expenses.) So the maximum credit is $5,000.
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What sorts of expenses qualify for the credit? The expenses must be incurred to meet requirements established by the Americans with Disabilities Act of 1990 (ADA):
- Removal of architectural, communication, physical, or transportation barriers that prevent a business from being accessible to, or usable by, disabled individuals
- Providing qualified interpreters or other effective methods of making orally delivered materials available to hearing-impaired individuals
- Providing qualified readers, taped texts and other methods of making visually delivered materials available to visually impaired individuals
- Acquiring or modifying equipment or devices for disabled individuals
- Providing other similar services, modifications, materials or equipment. (IRC Sec. 44(c))
The modification does not have to exclusively benefit disabled individuals.
Recent case: An optometrist purchased an automatic refractor that allowed him to treat disabled patients. Prior to buying the refractor, the optometrist had been forced to turn away individuals who were disabled. Result: The Tax Court approved the disabled access credit even though nondisabled patients could use the refractor. (Hubbard, TDC Memo 2003-245)
The outcome would have been different if the optometrist had been able to treat disabled patients prior to buying the refractor.
Tip: Claim the disabled credit as part of the general business credit on Form 8826, Disabled Access Credit at www.irs.gov/pub/irs-pdf/ f8826.pdf.
Here's a peek inside the tax-savings tips in 76 Ways to Maximize Expense Account Deductions:
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