Tax Tips for Minority-Owned Businesses
Diversity in the business world is more important than ever right now. If your company is at least 51% owned by a woman and/or person of color, you can become a certified minority-owned business. This status can open up some tax incentives and business opportunities that may not be available to you otherwise.
What is a certified minority-owned business?
According to the National Minority Supplier Development Council (NMSDC) — the largest and most prominent certification body for minority-owned businesses — you must meet the following criteria to qualify as a certified minority-owned business:
- You must be a U.S. citizen.
- Your business must be at least 51% minority-owned, operated, and controlled. For publicly-owned businesses, at least 51% of the stock must be owned by one or more minority group members. The NMSDC defines a minority group member as “an individual who is at least 25% Asian, Black, Hispanic or Native American.” Eligibility for minority-owned business certification is established through screenings, interviews, and site visits.
- You must be a for-profit enterprise and located in the U.S. or its trust territories.
- Your business’s management and daily operations must be exercised by the minority ownership member(s).
The U.S. Small Business Administration, The Women’s Business Enterprise National Council, and other local and regional certification bodies have similar criteria for businesses that are at least 51% owned by women and/or individuals from other socially and economically disadvantaged groups.
Becoming certified as a minority-owned business can give you a leg up on private and government contracts. Many government agencies are mandated to reward a percentage of their contracts to minority-owned businesses, while private corporations may choose to work with a minority-owned business for tax incentives.
There are also numerous resources you can access to help you grow your minority-owned business, including business.usa.gov, your state’s Disadvantaged Business Enterprise (DBE) site, and the Government Services Administration (GSA) site.
What tax incentives can you get as a minority-owned business?
The federal government provides tax incentives for companies that partner with minority-owned businesses to obtain materials and supplies. Additionally, another tax incentive helps reduce tax liabilities for companies using minorities who offer labor or services to federally- or state-funded projects.
Similarly, the U.S. Department of Commerce’s Minority Business Development Agency (MBDA) qualifies minority-owned businesses for special employment consideration and allows those businesses to apply for special tax incentives whenever available under contract.
Tax tips for minority business owners
1. Take advantage of the new-markets tax credit (NMTC).
Investors can claim the NMTC for investing indirectly in minority-owned businesses. This program provides a tax credit against a taxpayer’s federal income taxes for investing in designated community development entities (CDEs).
2. Choose your business location wisely.
Business owners who hire employees who live near or on Native American reservations are eligible for this tax credit. You may also be able to claim a tax credit if you start a business in an economically distressed or low-income area. While these tax breaks are not exclusive to minority-owned businesses, entrepreneurs who have lived in or are familiar with these locations may have an advantage when it comes to gaining traction as a business.
3. Get help from a trusted CPA firm.
The tax accounting experts at Miller & Company LLP can guide you through the tax filing process and help determine the best tax strategy for your business. We’ll help you through the certification process and help you find and claim all applicable tax breaks and incentives, for this tax year and beyond. Contact the experts at Miller & Company and schedule a consultation with the accountant to discuss your tax questions and preparation needs. Miller & Company is among the top rated accounting firms located in New York City, Washington, DC and Sarasota, FL.