Three overlooked tax-smart investments for your growing business

There are a lot of common tax-smart business investments out there. But some trod off the beaten path. 

While this blog doesn’t often wax poetic, today, it’s going down the path less traveled to find three often-overlooked business investments that might help you make more profit this year. 

Let’s go!  

Qualified Small Business Stock (QSBS)

For Qualified Small Businesses, this investment can be a real boon. The QSBS allows shareholders of a QSB to potentially be 100% exempt from any federal capital gains taxes on exercised options or sales. 

The exemption is up to $10 million or 10 times the adjusted cost basis, whichever is greater. 

If paying $0 in capital gains taxes on a $10 million profit sounds too good to be true, it isn’t. 

But, like anything else, there are rules. 

First, you have to be a QSB. 

In a nutshell, that means you have a U.S. C-corporation, gross assets of $50 million or less before and immediately after equity issuance, and 80% of company assets in a qualified trade or business. 

Another big rock is that shareholders have to hold the equity for at least five years to gain the exemption. 

There are lots of little rocks, too so you’ll want a CPAs help to ensure this is done right. 

That said, the QSBS is worth a look because paying 0% capital gains can entice investment in your business and benefit employees. 

Research and Development Tax Credits

This one isn’t just for high-tech or scientific companies. Your business may qualify if your R&D activities meet a four-part test. 

First, the goal must be to improve the functionality, performance, reliability, or quality of a product or service where there is technical uncertainty about how to achieve the improvement. 

Next, it must involve systematic testing, modeling, or trial and error. 

Finally, the R&D must rely on the principles of engineering, physical science, computer science, or some similar field. 

So, any company, from a winery experimenting with refining techniques to a construction company developing new methods for unique architectural designs, has the potential to qualify for this tax credit. 

However, like the QSBS, you don’t want to try to determine compliance on your own. There are a lot of caveats to this one, so talk with your CPA first. 

Energy Efficient Properties 

A whole book could be written about this one.  The potential for tax-smart investing through energy-efficient properties is huge. 

We can’t cover them all, but the following may work for your business. 

One of the most common is the 179D Commercial Buildings Energy-Efficiency Tax Deduction.

It allows businesses to deduct the cost of energy-efficient building improvements like HVAC systems, interior lighting, and building components like roofs, walls, windows, and foundations. 

Another is the Investment Tax Credit (ITC) for Renewable Energy. It provides businesses with a 30% tax credit for installing renewable energy systems like solar, wind, or geothermal energy.

Finally, there’s the Modified Accelerated Cost Recovery System (MACRS) with Bonus Depreciation. It’s a mouthful, but it may be worth it because a business can speed up depreciation schedules, which means lower taxable income. 

These are three approaches, but many more depend on where you do business.  You can see all the credits and programs available in your state here. 

The Bottom Line

Tax-efficient business investing can come in all types of forms. So, thinking outside the box is essential when looking for new ways to gain an advantage. 

It’s also important to remember many of these methods have strict compliance regulations. 

With your CPA as a guide, you can go down that road less traveled and see if some of the investments there can take your business to places you never thought possible.