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Safety with a tax deduction

July 1st, 2012 / By: / Management

Every marine canvas and upholstery business, large or small, is responsible for protecting the safety and health of its employees. In addition to being the right thing to do, safety is also good business. Doing it right pays off in increased productivity, lower costs and higher employee morale. An effective safety and health program can save $4 to $6 for every $1 invested.

Unfortunately, the government frequently steps in to tell a marine fabricator what to do about its facilities, equipment, work sites, etc. The improvements required under the Americans with Disabilities Act (ADA) or those mandated by the Occupational Safety and Health Administration (OSHA) are good examples. A marine fabrication or upholstery operation has little choice about complying with improvements required under the Americans with Disabilities Act (ADA). Make the changes or pay penalties.

A marine canvas or upholstery business forced to pay fines or penalties for noncompliance or law violations will find the tax law specifically denies deductions for violating the law. Thus, the marine fabricator or upholsterer has little choice but to comply with government-ordered improvements, and do it as quickly as possible.

While the cost of capital construction and improvements are not immediately deductible, they can be added to the basis of property and recovered through depreciation. Although this can be a long process, special rules can accelerate the deductions or write-offs for making some mandated improvements. Consider:

The Americans with Disabilities Act.
A marine fabricator or upholstery business required to make changes to its facilities in order to accommodate the handicapped or elderly public—or its own employees—under ADA may qualify for a tax break. Thus, something as simple as adding ramps and railings may mean a tax deduction.

The Disabled Access Credit.
A marine fabricator can claim a tax credit of 50-percent of the cost of expenditures over $250, and up to $10,500 a year, for a top tax credit of $5,000. This credit applies only for small businesses, defined as those with gross receipts of $1 million or less, or fewer than 30 employees in the preceding year.

Barrier removal.
A special deduction for the cost of removing barriers to the disabled and the elderly is capped at $15,000 per year. If costs are greater, the amount over $15,000 can be capitalized and recovered through depreciation.

OSHA is concerned with safety for employees in the workplace. Under the OSHA Act, every marine fabricator, regardless of the size of the business, must provide a workplace free from recognized hazards that are causing, or are likely to cause, death or serious physical harm to employees.

There are no special tax breaks immediately tied to OSHA-ordered changes or improvements. Depending on the type of changes required, the costs may be immediately deductible or will have to be capitalized.

A good example of what is immediately deductible is the personal safety equipment purchased by so many marine fabrication businesses for their workers, such as goggles and protective gloves. Rewiring, constructing exits, overhead protection, or other capital improvements to a canvas or upholstery business’s shop, plant or facility may have to be capitalized.

As mentioned, fines and penalties are not generally tax deductible, although fees for legal and professional services are. Amounts paid for legal services to battle fines and penalties levied for safety violations, as well as many other causes, are tax deductible.

In fact, in 1996 Congress passed the Small Business Regulatory Enforcement Fairness Act (SBREFA) to help small businesses. An often-overlooked provision of SBREFA gives small businesses expanded authority to recover attorneys’ fees and costs when a federal agency has been found to be excessive in enforcing federal regulations. The legislation also establishes 10 Small Business Regulatory Fairness Boards to receive comments from small businesses about federal compliance and enforcement activities and report these findings annually to Congress.

Many marine fabricators are required to establish an OSHA training program, and all employees at the time of their hiring and at least once a year are to receive OSHA-related training. Under our tax rules, many of the educational and training expenses incurred by a marine canvas or upholstery business are both tax deductible by the business and, at the same time, tax-free to the recipients.

When it comes to paying for safety improvements, mandated or voluntarily made, a number of lenders stand ready to assist. The SBA, for instance, is authorized to make loans to assist small businesses with meeting OSHA standards.

Many safety hazards can be corrected without financial assistance. Health hazards, on the other hand, may be more costly to correct.

Establishing a safe and healthful working environment requires every marine fabricator—large and small—and every worker to make safety and health a top priority. The entire work force, from the CEO to the most recent hire, must recognize that worker safety and health is central to the mission and key to the profitability of the company. Better yet are the workplace safety-related tax write-offs available.

Mark E. Battersby, based in Ardmore, Pa., writes on business, financial and tax-related topics.

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