How to Save Money on Taxes in Philly

As seen in Philadelphia Magazine

It often feels like taxes can’t get much worse. Luckily, they can actually get better according to Jaime Reichardt, JD, LLM, a state and local tax principal at Citrin Cooperman. Here’s his advice on how to save money on your taxes this year in the Philadelphia region. Your wallets will be thanking you.

What are some examples of incentives and benefits that states and localities may offer?

JR: There are a number of different incentives, such as: tax credits for job creation and/or investment, redevelopment tax credits for developers, workforce training grants, sales and use tax exemptions for qualifying manufacturing, processing, R&D and packaging equipment, utility tax exemptions, special apportionment methods used for calculating taxable income, property tax abatements and tax increment financing programs used to fill funding gaps that are paid back through incremental tax revenues generated at a project site.

How about examples in and around the Philadelphia region?

JR: Pennsylvania offers tax credits for manufacturing, film production, and R&D. The Keystone Innovation Zone tax credit is available to companies up to eight years old engaged in technology and science-related industries in certain zones. Keystone Innovation Zones afford qualifying businesses the opportunity to abate most of their state and local taxes. Philadelphia has job creation and community development tax credits as well. New Jersey just enacted a major new job creation tax credit in addition to incentives for real estate developers and Delaware offers tax credits for new business facilities and headquarter locations. All three states also offer some form of a property tax abatement as well.

What does the process involve? Is there a lot of governmental red tape and compliance?

JR: Some incentives are as-of-right and available for engaging in certain activities. These usually don’t require significant pre-approvals; just the completion of a form or certificate. Discretionary incentives generally require application, discussion with the jurisdiction(s), and demonstration that the incentive is integral to the business or developer’s decision to undertake the project, hiring or investment.

Generally, the more lucrative the incentive, the more process and compliance is involved. These incentives are not free and come with various hiring and/or investment requirements, annual reporting and claw backs for failure to maintain the project or operations. The complexities that could arise through the process and compliance underscore the need for a knowledgeable and trusted advisor.

What are some examples of common missed incentive opportunities?

JR: I would say the most commonly missed incentives are those available to start-up technology or biotechnology businesses and their investors. For example, in Philadelphia without a bit of planning, a new business can miss out on the new business tax exemption, job creation tax credits, Keystone Innovation Zone tax credits and special income sourcing rules for software companies. The other areas that are commonly missed are sales tax exemptions and determining the exact scope of qualifying manufacturing, processing, R&D and packaging/fulfillment activities.