Tax Incentives for Small Businesses: Engine for Economic Growth

As an accounting professional and small business consultant working with locally owned businesses for more than 20 years, I always hear stories from small business owners about their achievements, frustrations and how they enjoy doing the work they love.

I see how self-employment is a strong option for all individuals nowadays, and I truly believe that small businesses are the engine for local economies. Small businesses are a unique source of energy, creativity and fresh ideas.

Statistics speak for themselves about the entrepreneurial spirit in our state and how Arizona has consolidated as a hub to grow small businesses. According to the U.S. Small Business Administration,, 99.5% of business entities in Arizona are small businesses that employ 42.2% of Arizona workers.

For entrepreneurs, like myself and many of my clients, taxes are one of the main concerns, and they ask questions such as, “How much am I supposed to pay for taxes?” “Why am I paying a specific amount?” and “Is there a way I can reduce the taxable income?”

Our state has multiple resources, such as organizations like Local First Arizona, that strengthen and support entrepreneurs’ growth. Local First Arizona is committed to community and economic development across our state; it helps small businesses navigate local challenges and capitalize on local opportunities, including access to tax deduction information.

The federal government, through the Inflation Reduction Act, — aimed at building an economy that serves working families and small businesses — is reducing costs for small businesses by maintaining lower healthcare costs, supporting energy-saving investments and bolstering supply-chain resiliency.

Furthermore, building owners and renters can receive a tax deduction of up to $5 per square foot for improving a commercial building’s efficiency by 25% or greater. Energy efficiency businesses like window installers, electricians and HVAC professionals can increase deductions’ value with bonuses for paying prevailing wages.

The IRA legislation levels the playing field and will help spur high-impact R&D by increasing small businesses’ refundable research and development tax credit from $250,000 to $500,000. Small businesses may use the credit to further reduce payroll taxes and other expenses by up to $500,000 annually to do their best: innovate and commercialize to solve global problems and create jobs to propel our economy forward. For businesses that cannot take advantage of R&D tax credits, most companies can take advantage of accelerated and bonus depreciation on assets. Section 179 Expense deduction allows a business to deduct the entire cost of an asset, such as solar panels or batteries, in the year it is acquired and started to be used for business (subject to specific limitations) up to a maximum of $1,160,000. Eighty percent bonus depreciation is also still available for 2023.

The IRA offers incentives for entrepreneurship, tax credits, and programs addressing business challenges. Small businesses should leverage the IRA to create a prosperous community.

Michael Ly is CEO of Reconciled, a national bookkeeping and advisory firm for small businesses. Reconciled has been recognized as one of the fastest growing and innovative accounting firms in the country. Also a business coalition member of Local First Arizona, Ly started his accounting career in Tempe at a nonprofit and spent the past 20-plus years working with small businesses. He is also cofounder of Humnly, an HR-as-a-service platform for small business. Ly is a Tempe native and Arizona State alum. He holds an MBA from Babson College and a Bachelor of Science in business administration from ASU.