Title III of the Americans with Disabilities Act (ADA) prohibits discrimination against people with disabilities in the activities of places of public accommodation. Places of public accommodation include many categories of businesses such as restaurants, grocery stores, and movie theaters, among others.
All businesses, regardless of their financial situation, are required to make the necessary modifications to make the facility accessible to those with disabilities. Fortunately for these businesses, there are two significant tax incentives that are available to help businesses comply with the accessibility requirements mandated by the ADA.
Tax credit
The first incentive is the Disabled Access Credit established by Section 44 of the Internal Revenue Code that is available to small businesses. To qualify as a small business, the business must have had less than $1 million in revenue for the previous tax year or have fewer than 30 full-time employees. The tax credit can be used to cover half of the accessibility related expenses incurred by the business up to $10,250 (the business is responsible for the first $250) for a maximum credit of $5,000.
The tax credit is subtracted from the total amount of taxes owed by the business. Among the expenses that are covered under the tax credit are barrier removal, providing aides such as braille menus, purchasing adaptive equipment, and making interpreters and readers available for employees and customers. It is important to note that the tax credit only applies to modifications of existing facilities and cannot be used for new construction.
The tax credit has the added benefit of being able to be carried over year-to-year. For example, if a small business claims a $5,000 tax credit for accessibility improvements but only owes $3,000 in taxes, the remaining $2,000 can be used as a credit toward the following year’s taxes.
Tax deduction
The second tax incentive is a tax deduction that is available to businesses of all sizes. A tax deduction is different from a tax credit in that a tax deduction is an amount that is deducted from the business’s total income before tax and reduces tax liability. The tax deduction, established by Section 190 of the Internal Revenue Code, has a maximum value of $15,000 and can be used to offset expenses related to the removal of architectural barriers and making improvements in transportation accessibility.
Combined benefits
Both the tax credit and tax deduction can be used annually. In some cases, businesses can qualify for both the tax credit and the tax deduction. For this to happen, a business must have accessibility related expenses that qualify under both Section 44 and Section 190 of the Internal Revenue Code. For example, if a business spent $20,000 to remove barriers in their facility, the business may claim the $5,000 tax credit based on the cost of removing the barriers, and they may also deduct $15,000 from their taxes to cover the difference between total expenditures and the tax credit.
The tax incentives available to businesses help to reduce any costs related to making improvements in accessibility. Making places of public accommodation accessible is not only required by the law, but it can also help to attract more patrons who would otherwise be denied access. When making modifications to make their businesses more accessible, business owners should explore the tax incentives that are available to offset any expenses that may be incurred.
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