Tax incentives for small and mid-size companies

Most small and mid-sized companies can qualify for tax incentives if they claim to be developing, engineering, designing, modifying, researching or evaluating new products or product alternatives. Among those incentives is the research and development tax credit.

The R&D credit is a way for companies to access cash and reduce current and future federal and state tax liability. Companies involved in creating prototypes can also qualify for the R&D credit. This credit has no requirement that a company be successful.

The R&D tax credit includes expensing and bonus depreciation, which allows a business to deduct expenses paid for equipment that would normally be claimed as it depreciated over time. Small business owners who conduct business from their homes can claim to use their personal vehicles. Expenses for travel associated with business that occurs Monday through Friday are 100 percent deductible with meals and entertainment at 50 percent deductible.

Companies with 50 full-time employees or less may benefit from utilizing the SHOP Exchange to lessen their health care expenses under the Affordable Care Act.

Shareholders personal assets are protected, through this tax credit but they are liable for the amount of their investment. After business expenses are deducted they pay a tax on their profits at the corporate level.

Bureaucracy at the state and federal level exists when it comes to hiring professionals to manage intricate corporate laws.

The IRS's S-Corporation law eliminates double taxation, federal tax and offers easier accounting by giving a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership. However, these are not recognized by some states.

Numerous regulations still exist and the IRS requires that all business owners earn an appropriate salary even if the company is not yet making a profit.

The Limited Liability Company is simpler to run, more flexible in structure and has fewer restrictions on the type and number of partners. An LLC requires less bureaucracy, is more attractive to foreign investors and allows profits to not be double taxed. An LLC allows members to be investors as well as patrons with fewer restrictions, in the end offering the most benefits.

• Michael Leonard is managing partner at Leonard & Associates CPAs in Oak Park. Michael@leonard-cpas.com