Keeping up with the rising tide of expenses that a business incurs to adhere to industry regulations, can be expensive. Every snow and ice management operation faces an almost overwhelming financial burden when attempting to comply with the many rules, regulations, restrictions, and ordinances encountered every day.
In addition to the tax rules and local government regulations, there are compliance laws and regulations such as the Dodd-Frank Act, Payment Card Industry Data Security Standard (PCI DSS), the Sarbanes-Oxley Act (SOX) and, of course, the Federal Information Security Accountability Act (FISMA). Little wonder a business will often have little choice but to throw more people, time and resources at the problem of complying.
While, obviously, not all rules and regulations are bad, complying with an excessive number of regulations cuts into a snow and ice owner’s or manager’s most valuable commodity – time. It takes time to navigate, comply and, in many cases, find and hire advisers to help with the complex rules – as well as the money to do all that.
As lawmakers continue to create new laws and regulations, impose more and more new rules that every snow and ice management business must comply with, and step-up enforcement, levying fines or penalties for even the smallest infractions, the financial burden of complying weighs ever more heavily.
Fortunately, while few of these rules and regulations are accompanied with direct financial relief, our tax laws do, on occasion provide a degree of relief.
THE PRICE OF NONCOMPLIANCE
There are many examples of how a snow and ice removal operation might suffer from penalties, disruption and, in some cases shutdowns due to non-compliance. Sometimes non-compliance to internal policies or union requirements may result in downtime – and productivity loss.
Complying with data privacy issues is likely to become even more complex in the coming months. Businesses may risk losing credibility and customer’s trust for any breach of data. This may result in fines and, eventually, a loss of revenue from unhappy customers and/or suppliers.
And don’t forget the problem non-compliance can create when it comes to funding, the availability of bank loans and/or government financial assistance. Fortunately, there is a solution.
Today, every contractor and business owner is aware of the penalties, fees or threat of termination that can result from a failure to comply with the credit card company’s Payment Card Industry (PCI) validation rules. To make matters more confusing, each credit card company has their own umbrella compliance program, usually based on the number of transactions for their credit card alone. In other words, the credit card companies differ in their definition of “levels” and compliance validation submission requirements.
Each level has specific compliance validation requirements. If in doubt about transaction levels, assemble the number of transactions separated by credit card brand, contact your bank and ask.
So-called “acquirer” banks have the ultimate decision authority over their merchants’ levels. So, keep in mind that should the snow removal business suffer a breach at any time, its level may be elevated. Of course, once the operation’s level is known, determining what the operation is responsible for and what the acquirer bank must be provided in order validate compliance.
A WRITE-OFF FOR COMPLYING LOCALLY
While it is too late to oppose many of the changes already impacting the snow and ice removal business, underwriting the cost of complying with -– or fighting -- city hall may be helped by our tax laws. Unfortunately, contributions made to a political candidate or party, are not deductible as business expenses.
What’s more, lobbying expenses directed toward influencing federal or state legislation are generally not tax deductible. The prohibition does not generally apply to in-house expenses that do not exceed $2,000 for a tax year. Lobbying expenses pertaining to local legislation are, of course tax deductible.
BUSINESS PROPERTY AMMUNITION
Fighting a change in zoning rules to allow the operation of a snow and ice removal operation’s shop or yard can be quite expensive although tax deductions can help reduce the out-of-pocket costs of doing battle. Similarly, the expenses of fighting property tax assessments can be tax deductible with a favorable outcome substantially reducing the property tax bill for years to come.
No business has to recognize gain after an involuntary conversion (i.e., theft, destruction or condemnation) if the converted property is replaced with property that is similar to, or related in use to, the property that was lost or taken. Naturally, gain must still be recognized to the extent that the net proceeds from the involuntary conversion are not invested in replacement property.
It should be noted that any tax that is in reality an assessment for local benefits such as streets, sidewalks and similar improvements is not deductible by the property owner -- except where it is levied for the purpose of maintenance and repair or of meeting interest charges on local benefits. It is the taxpayer’s burden to show an allocation of amounts assessed for different purposes.
DISABLED ACCESS TAX CREDIT
The 1990 passage of the Americans with Disabilities Act was one of the few that contained tax deductions and credits for any business required to comply. If improvements are mandated -– or needed -– in order to make the snow removal and ice management operation’s property more accessible by either disabled customers or employees, unique tax deductions and tax credits can help trim the expense.
Eligible businesses are entitled to a non-refundable income tax credit for expenditures incurred to make the business accessible to disabled individuals – customers or workers. The amount of the credit is 50 percent of the amount of eligible access expenditures for a year that exceed $250 but do not exceed $10,250.
In a related area, snow removal businesses can elect to immediately deduct up to $15,000 of the expense of removing certain architectural and transportation barriers for handicapped or elderly persons in the year paid or incurred instead of capitalizing and depreciating such costs.
MEETING THE DEMANDS OF A LANDLORD
Expenses incurred attempting to comply with the demands of a landlord can also be reduced using our tax rules. The expenses of re-negotiating a lease can, for instance, be written-off or amortized as an intangible expense. Similarly, an amount paid by a tenant (lessee) for cancellation of a lease on business property in generally deductible.
And then, there are those improvements made to leased property. So-called “leasehold improvements” are any improvements made by the lessee who is renting from the lessor and which the lessee will use throughout the life of the lease agreement. The lessee is the owner of these improvements until the expiration of the rental contract or agreement.
New rules under the CARES Act modified the depreciable life of leasehold improvements and qualified improvement property from 39 years to 15 years, making these improvements eligible for bonus depreciation. Even better, bonus depreciation can, in some cases, still be retroactively applied for improvements made in 2018 and 2019, creating significant tax-reduction possibilities.
COMPLYING WITH EMPLOYEE DEMANDS
A business doesn’t have to be unionized to face demands by employees or government agencies acting on the behalf of workers. One tax break providing relief allows eligible small businesses to claim a credit for qualified startup costs incurred in establishing and administering an eligible employer benefit plan for their employees.
The credit amount equals 50 percent of the qualified startup costs incurred by a business to create or maintain a new employee retirement plan. The credit is limited to $500 in any tax year and it may be claimed for qualified costs incurred in each of the three years. An eligible small business is one that has not employed more than 100 employees who received at least $5,000 of compensation from that employer in the preceding year.
It makes good business sense to ensure compliance with all relevant regulations. However, since few compliance programs or laws come with provisions to help offset their cost, our tax laws are often the only avenue of potential savings – if the snow and ice removal operation’s owners/managers understand and take advantage of them when attempting to comply.