By Brian Baumgart
Getting involved in a franchise business can be a great opportunity for market entrance or accelerated growth, but it can also be a complicated and demanding process.
For greater success, there are various tools and strategies you can use to help put more money back into your pocket. Additionally, these tools may be available to both franchisors and franchisees.
Work Opportunity Tax Credits — The Work Opportunity Tax Credit (WOTC) is a federal tax incentive that rewards employers for hiring workers from specific groups, such as veterans, people with disabilities, former unemployed individuals, and public assistance recipients. If you’re starting a franchise, the WOTC can lower your federal tax obligation and bring a significant financial advantage. To take advantage of this credit, you need to complete a pre-screening process and apply for certification from the U.S. Department of Labor. This can be easily integrated into your hiring process for seamless tax savings.
Federal Empowerment Zones — Federal Empowerment Zones are designated areas that receive tax benefits, grants, and other incentives to boost economic development and job creation. If your franchise business is located within an Empowerment Zone, you may be eligible for these benefits, including lower taxes, access to low-interest loans, and other federal employment tax credits of up to $3,000 per eligible employee per year.
LIFO inventory — LIFO (last in, first out) is an accounting method that calculates inventory costs based on the assumption that the last items purchased are the first items sold. This method helps offset rising inflation and can be particularly useful for franchisees with inventory-heavy businesses by reducing the cost of goods sold, increasing the value of inventory on hand, and lowering tax liability.
Cost segregation studies and depreciation on assets — Cost segregation studies and depreciation on assets are two strategies that can help reduce your tax liability and increase cash flow. A cost segregation study separates personal property from real property for tax purposes and allows you to take advantage of shorter depreciable lives for personal property and decrease taxable income. This study is most effective when completed during a new build or refresh.
Depreciation on assets is a tax-deductible expense that enables you to recover the cost of your property over time. Currently business owners can utilize both Section 179 and/or bonus depreciation to accelerate the associated deduction of these expenses and allow a full write-off in the year purchased. Keep an eye on these regulations as bonus depreciation is expected to phase out each year beginning with a 20% reduction in 2023.
Financial decision making — The most crucial thing you can do for your business success is to make informed financial decisions. This means setting a budget, hiring qualified help, and making strategic choices that can help you manage your finances effectively. A well-constructed budget and timely recordkeeping can keep your finances on track, and hiring help can free up your time and energy to focus on other aspects of your business.
At CLA, our franchise-specialized national practice of accountants and consultants provides industry-specific insights across numerous markets, with many of our professionals having owned or operated franchise businesses. We gather, analyze, and clearly present the data you need to predict and plan for the future.
This approach includes staying up-to-date on regulations and taxes that may impact your business. Our team listens to your needs and helps you apply the information to make informed decisions to achieve the growth and success you desire now and in the future.
For more information on franchises, contact Brian Baumgart at brian.baumgart@CLAconnect.com or 414-721-7659.
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader. For more information, visit CLAconnect.com.
CLA exists to create opportunities for our clients, our people, and our communities through our industry-focused wealth advisory, digital, audit, tax, consulting, and outsourcing services. CLA (CliftonLarsonAllen LLP) is an independent network member of CLA Global. See CLAglobal.com/disclaimer. Investment advisory services are offered through CliftonLarsonAllen Wealth Advisors, LLC, an SEC-registered investment advisor.
