A Rundown of Shop Responsibilities Regarding Protecting Employees.
By Mark E. Battersby
Mark E. Battersby writes on financial and tax-related topics. Learn more at thetaxscribe.com.
Every specialty automotive aftermarket business, large or small, is responsible for protecting the safety and health of its employees. Safety is also good business, paying off in increased productivity, higher employee morale and, in many cases, reduced costs.
The safety-related expenses of a performance, restyling or vehicle customization business can often be reduced by tax deductions or credits. The tax rules can be rewarding for shop owners attempting to adhere to the safety standards imposed by the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA).
THE EPA
The EPA’s environmental compliance requirements cover the disposal of waste oil, solvents and coolants. Shops must ensure proper containment and labeling to avoid EPA fines.
In addition to regulating spray booth emissions and requiring hazardous material training, the EPA also requires that “proper” extraction and ventilation systems must be utilized, particularly for welding, brazing or when operating internal combustion engines within the shop.
Fortunately, tax deductions exist that allow the cost of that required waste oil disposal, solvent replacement and hazardous material training to be written off. Even the cost of spray booth emissions monitoring can qualify as tax deductible.
Every specialty automotive aftermarket business is responsible for protecting the safety and health of its employees. (Photo credit: Alex - stock.adobe.com)
OSHA COMPLIANCE
OSHA is concerned with employee safety in the workplace. Under OSHA provisions, every specialty automotive aftermarket business must provide a workplace free from recognized hazards that are causing, or are likely to cause, death or serious physical harm to employees—regardless of the size of the business.
Depending on the type of changes required, the costs may be immediately deductible or will have to be capitalized. A good example is the personal safety equipment purchased by many shops for their workers, such as goggles and protective gloves.
These are usually immediately deductible as an ordinary and necessary business expense. Meanwhile, rewiring and other capital improvements made to a shop may have to be capitalized.
A performance, restyling or customization professional may want to consider OSHA’s free on-site consultation offering. The program does not entail penalties or citations—it merely makes recommendations for improvements to be a safer workplace. This can help a shop avoid penalties that could result from inspections down the road.
TRAINING & EDUCATION
OSHA requires employers to provide training to workers who face hazards on the job. Under the rules, a specialty automotive aftermarket business is required to establish an OSHA training program that employees receive at the time of their hiring and at least once a year afterward.
Often, governmental agencies at all levels may require safety training and education. Fortunately, the cost of providing employee safety training—such as safety certification courses, workshops and other required training programs—is usually tax deductible.
Under current tax rules, many of the educational and training expenses incurred by a shop or business are both tax deductible by the business and, at the same time, tax-free to the recipients. An often-ignored provision of our tax law permits every specialty automotive aftermarket professional to claim a tax deduction for expenditures made to educate or train employees.
Under OSHA provisions, shops must provide a workplace free from recognized hazards that are causing, or are likely to cause, death or serious physical harm to employees. (Photo credit: abu - stock.adobe.com)
TAXES TO THE RESCUE
Shop owners can deduct safety-related expenditures, if they are “ordinary and necessary” for the operation or the industry. In fact, most specialty automotive aftermarket shops can immediately deduct or “expense” major machinery such as diagnostic scanners, lifts and tire balancers, thanks to Section 179 first-year expensing rules. Or the business can take advantage of the recently restored 100% “bonus” depreciation for large machinery and equipment costs.
Under a unique “de minimis safe harbor,” a shop can deduct the cost of safety gear and small tools under $2,500 per item/ per invoice. Of course, an aftermarket operation without a qualified accounting system can also deduct them as “supplies.” Consider reimbursing workers who provide their own tools.
EMPLOYEE TOOL & EQUIPMENT PLANS
Employees in many industries routinely purchase their own safety clothing. Unfortunately, they are no longer permitted to claim a tax deduction for “employee business expenses” on their personal income tax returns. Should the employee provide his or her own tools, employers can often reimburse them for these expenditures.
An “Employee Tool and Equipment Plan” is an agreement between an employer and one or more of its employees to provide, maintain or reimburse for the tools and equipment necessary for work. In addition to saving the employee federal income taxes, the employer does not have to withhold employment taxes on that portion of the employee’s compensation.
As the IRS has pointed out, professionals achieve this tax result by structuring the Employee Tool and Equipment Plan as an “Accountable Plan” as defined in the tax law. To qualify as an Accountable Plan, it must meet some very minimal requirements.
Specifically, the plan must require the employee to substantiate the expense and provide that the employee must return any amount in excess of the amount of the expense that is substantiated.
Safety is good business, paying off in increased productivity, higher employee morale and, in many cases, reduced costs. (Photo credit: NovaVision - stock.adobe.com)
UNFORTUNATE PENALTIES
Automotive aftermarket businesses forced to pay penalties for noncompliance or law violations will find that the penalties are not tax deductible.
The tax law specifically denies deductions for fines and penalties paid to the government for violating the law.
Thus, the shop has little choice but to comply with government-ordered improvements and do it as quickly as possible so as to minimize or avoid penalties.
However, while fines and penalties are not generally tax deductible, 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 give small businesses assistance in understanding and complying with regulations and more of a voice in the development of new regulations. Under SBREFA, OSHA and other federal agencies must:
• Produce Small Entity Compliance Guides for some rules.
• Be responsive to small business inquiries about compliance with the agency’s regulations.
• Submit final rules to Congress for review.
• Have a penalty reduction policy for small businesses.
• Involve small businesses in the development of some proposed rules through Small Business Advocacy Review Panels.
The legislation also gives small businesses expanded authority to recover attorneys’ fees and costs when a federal agency has been found to have acted excessively in enforcing regulations.
OSHA requires employers to provide training to workers who face hazards on the job. (Photo credit: Hayyat - stock.adobe.com)
THE COST OF COMPLIANCE
The burden of complying with the many safety requirements, such as employee training costs, ASE certification and safety training, qualifies as a write-off, including the costs of travel, lodging and meals.
Maintaining an OSHA-mandated Hazard Communication Standard program and the necessity of maintaining and displaying corresponding Safety Data Sheets for every chemical is required in many shops.
Don’t overlook the requirements for personal protective equipment (PPE). Employers must provide and pay for mandatory PPE, including safety-toed shoes, welding helmets and ANSI-approved safety glasses, when needed.
Naturally, expenditures for items used within one year are fully deductible, while larger equipment may require depreciation.
Thanks to the tax law’s de minimis safe harbor, a specialty automotive aftermarket business can expense, rather than capitalize, the cost of tangible property up to $2,500 per item (or invoice), allowing for immediate deduction of smaller safety items such as specialized tools.
And don’t forget those state-level incentives.
Many states offer unique tax write-offs and credits for safety equipment and training related to prevalent industries in their regions.
On the downside, equipment expensed under the Section 179 expensing rule or using bonus depreciation may be subject to recapture rules.
Invoices, installation costs and other detailed records are required to support deductions for safety equipment and maintenance.
Some major structural safety improvements may also need to be capitalized and depreciated over time rather than fully deducted in the current year.
SAFELY FINANCING SAFETY
Ensuring a safe workplace is a fundamental responsibility for every business. But paying for safety improvements—required or voluntarily made—is another story.
Fortunately, several lenders stand ready to assist.
The SBA, for instance, is authorized to make loans to assist small businesses with meeting OSHA standards. Because SBA’s definition of a “small” business varies from industry to industry, contact your local SBA field office to determine whether your shop qualifies.
Anyone applying for an SBA loan should be aware that most delays in processing SBA/OSHA loans are because applications either do not adequately describe each workplace condition to be corrected and identify one or more OSHA standards applicable to the condition to be corrected, or do not provide a reasonable estimate of the cost to correct each condition.
Establishing a safe and healthful working environment requires every specialty automotive aftermarket business and every worker to make safety and health a top priority.
Fortunately, an abundance of government programs and professional assistance exists, and workplace safety and health-related costs are usually manageable and often tax deductible.
