Which Hiring Expenses are Tax Deductible?
Starting off with the big stuff, many businesses took out a Paycheck Protection Program loan to help get them through the downturn of 2020, which the majority of staffing firms felt. The most recent guidance issued on 1/6/21 allowed deductions for the payments of eligible expenses when such payments would result in the forgiveness of a loan under the PPP.
The news release from the IRS shared that “The COVID-related Tax Relief Act of 2020 amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to say that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness of an eligible recipient’s covered loan. This change applies to taxable years ending after March 27, 2020.”
The CARES Act
The Coronavirus Aid, Relief, and Economic Security – CARES Act provided further tax credits and relief to businesses suffering from the impact of Covid-19. If your business met the requirements for the new Employee Retention Tax credit, it offers a 50% tax credit for the first $10,000 per qualified employee.
Also, the employer portion of federal tax payments owed in 2020 can be deferred over the next two years. And, if you were due to receive a corporate alternative minimum tax (AMT) credit at the end of this year, you can instead claim your refund, now. Business interest expense deductions also increased from 30% to 50% of taxable income and companies who worked on improving their facilities are able to write off those expenses immediately.
The Work Opportunity Tax Credit (WOTC)
“The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment,” according to the IRS.
The WOTC goes all the way back to 1996 and has been extended multiple times since with the most recent Consolidated Appropriate Act 2021 authorizing WOTC through December 2025.. This program joins other workforce programs that aid access to good jobs for American workers and furthers diversity.
The WOTC program has been very popular with staffing firms where tax credits up to $9,600 for each qualifying employee hired have been received, with no limit on the number of qualifying temporary employees.
Other Tax-Deductible Expenses for 2020
Here’s 8 additional tax deductible expenses that your staffing firm can benefit from:
1. Taxable Fringe Benefits
Taxable fringe benefits are deductible as taxable compensation according to Barbara Weltmen, a small business tax expert. “Taxable compensation includes wages, salary, commissions, and bonuses. It also includes certain taxable fringe benefits, such as reimbursement for moving expenses. Taxable fringe benefits are deductible as taxable compensation.”
2. Employment Taxes
Employment taxes including social security, FICA, FUTA and state unemployment taxes of the employer’s share, are tax deductible.
3. Medical Coverage
Medical coverage, qualified retirement plans and other fringe benefits are tax-free to employees and employers can usually deduct the cost of them.
4. Recruitment Advertising
Recruitment includes paid ad placement online, in newspapers, trade publications, on the radio, television or any other form of broadcast, as well as paid subscriptions to job boards.
5. Career Fairs
Paid booth space and any associated costs with running the career fair booth (electrical, internet, etc.), printing expenses for informational handouts, giveaways (chachkies), and even branded clothing costs can be tax deductible. If you frequently attend job fairs and hiring events, you may even invest in an actual booth, versus setting up shop on a provided card table. The expense for the booth may also be tax deductible.
6. Travel Expenses
Travel expenses include mileage driven in company cars or related expenses for employees to use the personal vehicles to get to career fairs or other hiring events. For out-of-state events or hiring-related educational seminars/conferences/training sessions, airfare, hotel expenses, meals and transportation costs may be deductible, as is the expense for the event itself, if required to pay a fee.
Memberships/Dues include expenses relating to members of your staff being belonging to networking opportunities—such as staffing-related local or national organizations or societies.
8. Website Expenses
Any costs associated with building your website and maintaining it (URL registration, monthly hosting costs, etc.), as well as staffing agency software costs and/or fees can be tax deductible.
Contact COATS Today for Top-of-the-Line Staffing Software
In addition to being a deduction for your agency, staffing company software from COATS can also help you track your hiring expenses throughout the year and integrate them across multiple departments within your company. Expenses can be easily accessed by your Accounting Department, as can employee payment information and accounts billable data.
Everything your bookkeeping, accounting and/or tax professionals will need to file your taxes, send out W-2s and 1099s, and Profit and Loss Reporting is easily available. Plus, with customizable options, we’re poised to provide you with the best staffing agency software available. Contact us today to learn how we can help your business!