Form 8826 – Disabled Access Credit

What is the Disabled Access Credit (Form 8826)?

Imagine you own a small business, maybe a bakery or a bookstore. You want everyone to feel welcome, but you know that sometimes physical spaces aren’t easy for everyone to use, especially people with disabilities. The U.S. government wants to encourage businesses to be inclusive, so they created the Disabled Access Credit, and you claim it using Form 8826.

This tax credit helps small business owners like you offset the costs of making accessibility improvements. We’re talking about things like installing ramps, widening doorways, adding accessible restrooms, or providing sign language interpreters. These changes not only benefit individuals with disabilities but also contribute to a more welcoming environment for everyone.

A Bit of History: Why Does the Disabled Access Credit Exist?

The Disabled Access Credit came about as part of the Americans with Disabilities Act (ADA) of 1990. This landmark legislation aimed to ensure that people with disabilities have equal opportunities in all aspects of life. While the ADA set standards for accessibility, making these changes can be costly for small businesses. So, Congress introduced the Disabled Access Credit to ease the financial strain.

How Does Form 8826 Work?

Form 8826 is the document you’ll use to calculate and claim the Disabled Access Credit. Here’s a breakdown of how it works:

• Eligible Small Business: Not every business can claim this credit. You qualify if you are a small business that has either:
  • 30 or fewer employees or
  • $1 million or less in gross receipts in the previous tax year.
• Eligible Expenses: The credit covers specific costs you’ve incurred to comply with ADA standards. This includes expenses for:
  • Removing architectural barriers (like installing ramps or widening doorways).
  • Providing auxiliary aids and services (like sign language interpreters or audio descriptions).
  • Modifying equipment (like adding Braille keyboards or automatic doors).
  • Making communication methods accessible (like websites and apps).
• Credit Calculation: You can claim a credit equal to 50% of your eligible access expenditures that exceed $250, but cannot exceed $10,250. The maximum credit you can claim is $5,000. If you had eligible expenses of $10,250 or more, you would be eligible for the maximum $5,000 tax credit since you would calculate the credit amount by subtracting $250 from your expense amount ($10,250-$250 = $10,000) and multiplying that value by 50%.
• Carryover Provision: If you qualify for more credit than you can use in the current tax year, you can carry the unused portion of the credit over to future tax years. This means you can keep benefitting from your accessibility investments for years to come.

Examples of the Disabled Access Credit in Action

Let’s look at a few scenarios to make the concept clearer:

• Scenario 1: The Bookstore Owner
  Sarah owns a small bookstore. She installs a ramp, costing $4,000, to make her entrance accessible for people in wheelchairs. The first $250 of these expenses do not qualify for the credit, so her eligible access expenditures are $3,750 ($4,000-$250). Using Form 8826, she can claim a credit of $1,875 (50% of $3,750). This credit lowers the amount of taxes she owes.

• Scenario 2: The Bakery Owner
  John runs a bakery. He spends $12,000 on accessible restrooms for his customers. The first $250 is not included for tax credit purposes, leaving John with $11,750 of eligible access expenditures. Although he spent $12,000, the maximum credit you can receive is $5,000. He can claim the full $5,000 credit.

• Scenario 3: The Tech Startup
  A small startup, let’s call it “Tech Haven,” spends $8,000 to update its website to be more accessible to people with visual impairments, using screen readers and adjustable font sizes. The first $250 is not included, leaving $7,750. Tech Haven can claim a credit of $3,875 (50% of $7,750).

Who is Eligible for the Disabled Access Credit?

As we’ve mentioned, the Disabled Access Credit is specifically designed for:

• Small Businesses: Those with either 30 or fewer full-time employees, or with gross receipts of $1 million or less in the previous tax year.
• For-Profit Businesses: This credit typically isn’t available for non-profits or government entities.

If you meet these criteria, you are on the right track to claim this beneficial tax credit.

How to Claim the Disabled Access Credit

To claim the Disabled Access Credit, you’ll need to:

1. Determine Eligibility: Ensure you meet the small business requirements.
2. Track Expenses: Maintain detailed records of all eligible expenses related to accessibility.
3. Complete Form 8826: Fill out Form 8826 accurately, following all IRS guidelines.
4. Include Form 8826 with your Tax Return: Submit Form 8826 with your annual business income tax return (typically Form 1040 Schedule C for a Sole Proprietorship or Form 1120 for a corporation).

Keep all supporting documentation in case you need it to support your claim.

Related Concepts and Terms

Understanding these related concepts can help you further navigate this tax credit:

• Americans with Disabilities Act (ADA): The foundational law that sets accessibility standards.
• Architectural Barrier: Physical structures that limit accessibility.
• Auxiliary Aids and Services: Supports that aid communication for individuals with disabilities.
• Tax Credit: A direct reduction of the taxes you owe (unlike a deduction, which reduces your taxable income).
• IRS Publication 535: A valuable IRS resource on business expenses and tax credits.

Tips and Strategies for Claiming the Disabled Access Credit

Here are some helpful tips:

• Plan Ahead: Think about ADA compliance before you build or renovate, and factor in the costs from the beginning.
• Keep Detailed Records: Document everything, including receipts, invoices, and any professional consultation regarding accessibility.
• Consult a Professional: If the process seems overwhelming, seek help from a tax advisor or CPA.
• Don’t Miss It: The Disabled Access Credit is often overlooked, so make sure you are aware of it and see if your business qualifies.
• Combine with State Credits: Check if your state offers additional tax credits for accessibility improvements.
• Be Thorough: Make sure to read through the Form 8826 instructions to ensure accurate calculations and that you include all applicable information.

Common Mistakes and Misconceptions

Let’s clear up some common misunderstandings about Form 8826:

• Misconception 1: “Any renovation qualifies.” Only specific expenses that are directly related to ADA compliance are eligible for the credit.
• Misconception 2: “It covers all my expenses.” The credit only covers 50% of your eligible access expenses that exceed $250.
• Misconception 3: “It applies to all businesses.” Only small businesses meeting specific criteria are eligible for the credit.
• Misconception 4: “Its the same as the tax deduction.” A credit reduces tax liability, while deductions reduce taxable income. These are two different things.
• Mistake: Not keeping detailed records, which may lead to a rejected tax credit claim.

The Bottom Line

The Disabled Access Credit, claimed using Form 8826, is a valuable incentive for small businesses to become more inclusive. By understanding the requirements, tracking expenses, and completing the form accurately, you can not only improve your business but also reduce your tax burden. It’s a win-win for everyone. Remember, making your space more accessible is not just good for business; it’s the right thing to do.