Prioritizing fire safety measures should be a top-of-mind concern for any business owner. Not only will this protect your staff and customers, but it can yield significant tax benefits, too. If you want to capitalize on some creative tax deductions for your small business, start by installing fire sprinklers. These systems are effective more than 95 percent of the time, which lowers the risk of deaths, injuries, and financial loss while offering a serious return on investment. Here’s all you need to know about the potential tax advantages of a fire sprinkler system.
Why Your Business Should Have Fire Sprinklers
Due to the obvious safety implications of not having these systems, up-to-code fire sprinklers are a requirement in most commercial buildings—specifically, those over 55 feet tall or 5,000 square feet large. It is also important to regularly schedule maintenance and inspection checks on your system to ensure optimal functionality in case of a fire. There is no drawback to installing fire sprinklers. Instead, these creative tax deductions for small businesses are even more of an incentive to equip your office or storefront with them.
5 Tax Deductions You Can Score with Fire Sprinklers
Section 179 Deduction
Section 179 is a tax advantage that enables small business owners to write off the total cost of commercial equipment and machinery purchased or refinanced within the tax year. In most cases, fire sprinkler systems can be classified as business-related equipment under Section 179. As a result, it is easier to reduce your taxable income for the year the fire sprinklers are installed and optimize your refund.
Accelerated Depreciation
Your business could also be eligible for accelerated depreciation on fire sprinkler systems. In other words, The Modified Accelerated Cost Recovery System (MACRS) allows you to write off the depreciation value of business assets for a certain period (5, 7, or 15 years). Most fire sprinklers are in a 7-year depreciation category, which allows you to recoup the total system costs through tax deductions within that specific time frame.
Energy-Efficient Tax Credit
Many new fire sprinkler models feature energy-efficient components that meet the criteria for Section 179D (Energy-Efficient Commercial Buildings Tax Deduction). This federal tax credit offers incentives for small business owners who use energy-efficient systems and materials in their buildings. If your fire sprinklers adhere to these energy-efficient qualifications, you can claim the following deductions on your income tax return:
- Fire sprinkler systems installed before 2023: Up to $1.80 per square foot in buildings with a 50 percent energy reduction.
- Fire sprinkler systems installed in or after 2023: $.50 per square foot in buildings with a 25 percent energy reduction + $.02 per square foot for each percentage above 25, with up to $1.00 per square foot in buildings with a 50 percent energy reduction.
State and Local Incentives
Aside from federal incentives, consider creative tax deductions for small businesses at the local and state levels. These potential write-offs can vary based on location. It’s worth researching whether your business qualifies for a tax credit, rebate, or grant due to commercial fire safety improvements. Check out the Database of State Incentives for Renewables & Efficiency (DSIRE) to find available benefits in your zip code.
Maintenance Deductions
Once the fire sprinklers are installed, you can also write off continual maintenance costs as required business expenses. These maintenance costs include any repairs, inspections, or replacements made to the system over a year. Regular maintenance extends the life of fire sprinklers, protects occupants, and minimizes tax liability in case of fire.
How to Locate Tax Deductions for Fire Sprinklers
If you’re unsure how to find creative tax deductions for small businesses, many resources are available to help guide your search. Here’s where to look for more information on federal, state, or local fire sprinkler incentives that your business could take advantage of:
- Municipal Websites: Local governments usually offer tax credits or programs to small businesses within their jurisdiction. Visit your municipal website or county headquarters to learn more about the deductions you’re eligible for.
- State Tax Agencies: State departments of revenue or taxation are valuable sources of information on write-offs available in your particular state. These agencies can help you locate tax credits for investing in fire safety measures.
- Chambers of Commerce: Your chamber of commerce might offer hands-on assistance or resources for small business owners seeking tax incentives. The chamber staff can also refer you to a helpful agency or relevant program.
- Professional Advisors: Accountants, tax attorneys, or financial advisors can offer expert guidance on optimizing fire sprinkler system write-offs. These qualified professionals will identify the tax deductions that meet your business’s unique circumstances and specific qualifications.
Investing in Fire Sprinklers Is a Smart Business Move
Fire sprinklers protect your staff, customers, and business assets and can also contribute to significant tax savings. There are many avenues to turn a fire sprinkler installation into creative tax deductions for your small business. So, research the options available in your area, and remember to prioritize fire safety in all business operations. You never know when these critical measures might just save a life.
