ADA Tax Breaks Help Small Businesses Stay Accessible
~ by Beth Gaudio, NFIB Legal Foundation (5/18/07)
You may have heard about the Americans With Disabilities Act and wondered how it might affect your business. Perhaps you’ve heard about predatory plaintiffs using the ADA to extort small businesses in “drive-by” lawsuits. Even if you haven’t heard of the ADA, the reality is that you have obligations to make your small business accessible for the disabled. Instead of waiting for a lawsuit to hit you, why not take care of some accessibility issues ahead of time? Fortunately, Uncle Sam offers a variety of incentives to help you become ADA compliant; taking a proactive approach that won’t break the bank.
The Internal Revenue Service offers tax credits and deductions that qualified businesses can use every year to make their shops more handicapped accessible. Remember, a tax credit is like a refund you get on taxes you already owe, and a deduction means you get to subtract that amount from your revenue when figuring out what is taxable.
How the credit works
The first incentive, the credit for disabled access, can be used only by a small business. In this case, the IRS defines a small business as a business that has less than 30 employees or $1 million or less in gross revenue in the past year. So, even if your business grossed $4 million, if you only have 20 employees, you can qualify as a small business. On the other hand, if you have 40 employees, but grossed less than $1 million, you are still eligible for the disabled access credit.
The disabled access credit for small businesses lets you take a credit for 50 percent of costs for certain ADA compliance over a total $250. This means that for every dollar you spend on ADA compliance over $250 a year, you get 50 cents back. The maximum you can get back per year on this credit is $5,000. To receive the maximum, you would have to spend at least $10,250 on compliance like barrier removal or provision of auxiliary aids and services to disabled customers or employees. Practically speaking, this could take the form of wheelchair ramps or Braille menus, as long as the modifications comply with the ADA guidelines.
How the deduction works
The second incentive, the tax deduction, can by used by every business, every tax year. All businesses can get a deduction of up to $15,000 on all expenditures removing physical barriers to the disabled. It works by allowing you to expense that $15,000 of barrier removal instead of counting the removal in the capitalized or depreciated column. Physical barriers could be either architecture- or transportation-related. Removal might include widening doors, putting wheelchair lifts on delivery vans or installing handrails. Check with your accountant if you have questions about precisely which barrier removal falls under the IRS deduction or see Internal Revenue Code Regulation 1.190-2.
Your state may also offer additional tax incentives for making your business more ADA compliant. In addition, if you want to go the extra mile, there are federal tax credits for hiring disabled individuals of certain targeted groups. For example, hiring individuals who receive SSI or vocational rehabilitation referrals may mean a tax credit of up to $2,400 a year.
Unfortunately, there are unsavory businesses out there that may entice you to buy their products while claiming the purchase would benefit from one of the tax breaks above. This may or may not be the case, and you still need to examine the ADA guidelines and speak with your attorney or accountant to make sure you’ll get the credit or deduction.
Also, there is no safe-harbor provision for businesses and ADA compliance. This means there is no guarantee that modifications will completely guard your business against an unscrupulous plaintiff. That being said, if you do make concerted efforts to be ADA compliant, those who need accessibility are likely to notice and give you the benefit of the doubt. Check with your attorney for specific questions about your business’ obligations under the ADA.