Austin Tax Blog


Tax abatement refers to a tax reduction granted by government authorities. The underlying purpose of tax abatements is to encourage economic development. Largely, Tax abatements take precedence when it comes to small businesses.

Moreover, tax abatements practically facilitate small businesses that intend to launch a new office in another city or expand operational activities in the current one. In addition, if you want to make more capital investments in your business, there will be a designated tax abatement timeframe. 

This article primarily focuses on what small businesses should learn about the structure, benefits, challenges, and requirements of tax abatements.

How Do Tax Abatements Work?

It is imperative to understand that tax abatements are associated with the property instead of individuals. If you decide to sell your property during the abatement period, the remaining abatement would go to the new owner. Ultimately, it increases the value of your property. 

In addition, tax abatements usually last for a year or two. However, the designated time on your property could go as high as twenty or even thirty years. In fact, this will help your small business to reduce more property tax for an extended period.

Historically, counties and cities have offered tax abatements on properties that require revitalization. Counties, for instance, does not provide abetment when it comes to non-profit businesses. Similarly, if you provide an exclusive product or service; there is a good chance of abatements.

Eligibility for Tax Abatements

As of now, there is no designated specificity to be eligible for tax abatement. In fact, eligibility requirements change from one city or state or another. Small business owners, however, can proceed to apply and submit an abetment application and gain approval in a specific city or state.

That said, you would have to go through city or state guidelines to determine the exact amount of tax abatement. For example, if you want to start a small business in a home office, your income will establish tax abetment. In simple terms, if your income is high, tax abetment likely will not apply. Moreover, that is because tax abatements aim towards middle-income small business owners who want to decrease property taxes.

In addition, tax abatements often require individuals to move to a location in a particular time period. Now, this can be a hurdle for small businesses that may want to move in before or after the designated timeframe.

It is true – you may have to work for tax abatement. If your small business, for instance, resides in an urban area; you will have to make certain renovations and climate-friendly improvements to qualify for a property tax abetment. Therefore, it is wise to have enough income to pay for your unabated property taxes.

The Changing Tax Abatement Policies

Tax abatement is one of the tax incentives offered by the cities or states to encourage development. The policies, on the other hand, mainly focus on the growth of the private sector. Whether your small business operates in New York City or Austin, economic development is responsible to draft new policies or amend existing ones.

In addition, the policies receive approval so long as there is a reasonable agreement between the city manager and the city council. Furthermore, the purpose and initiation of various policies allow cities to establish certain boundaries.

Cities often grant-specific tax abatement amounts based on a preconceived policy. Naturally, the council and development authorities want small businesses to bring more jobs and add economic value to the city. If you add more jobs or the property value increases, you will enjoy significantly higher abated taxes. Remember, if you avoid paying full tax bills, the percentage of your abated taxes will decrease in a couple of years. 

Why Your City Offers Abatements?

In order to understand and benefit from tax abatements, small businesses should learn about property taxes. These taxes, after all, generate the highest revenue stream for local counties or cities. Moreover, that is precisely why failure to pay property will get your property seized by the government and results in hefty penalties.

It may be hard to get used to the idea of tax abatements for small businesses. However, once you calculate and analyze abatements as derived cause-and-effect value, things will start to become clear. Now, you may be wondering as to why counties or cities reduce taxes for certain properties.

To be blunt, cities expect to get break-even value to cover the tax losses. It is one of the reasons businesses work hard to get eligible for tax abatements. However, the basic criteria to judge and evaluate abatement rely on its monetary benefits.

Challenges Associated with Tax Abatements

It is possible that a city’s tax abatement program forces you to move into an undesirable community. Furthermore, the confusion regarding total benefits you can get out of abatements is another issue for small businesses. Naturally, you do not want to move into a place where the crime rate is high and business commercial activities are low.

The temporary nature of abatements requires eligible individuals and business owners to file applications beforehand. Usually, businesses expect an incremental change, but there is normalization to expect increased value that results in shock. Therefore, talk to a tax specialist to navigate, calculate, and analyze your investments.

Small businesses often do not receive abatement as per added value to their property. It means you still would have to pay property tax prior to making additional renovations. It may sound unfair, but that is how you eventually receive tax abatements on the entire value of your house.

Find Out Terms Associated with Abatements

There’s no definite value attached when it comes to the tax abatements. Speaking of a changeable timeframe, you should be able to calculate the percentile for each year. It is possible you could get a 30% increase or get a 20% reduction.

A good way is to ensure that you pay your property taxes in full. Similarly, regulate your business practice to cut out extraneous costs. In the beginning, businesses often claim a non-profit status to get suitable tax abatement value.

Since the property taxes are bound to change, your tax responsibility does not end even after the stated time of abatement expires. You do not necessarily have to calculate complex property taxes; a tax expert can review the changes as per new tax rates and help you adjust your budget.

For example, if you own a small factory and decide to invest an additional $200,000 into the facility; you can expect to have a 30-50% abated tax on your property as per the city’s development policy. However, the percentage (5-10%) of abated taxes will subsequently decrease after the first year. 


Tax abatement largely works in favor of small businesses. Similarly, if you have to decide between two or three properties, choose the one that offers more tax abatement and can increase the value of your property.

Ideally, you should consult previous property tax payments and find out local records to find out more about the abatement. The key is to have a sufficient budget when the abatement ends. If you occupy an expensive property in a commercial area, your property tax will skyrocket once the abatement expires. Therefore, plan before to make logical decisions for your business.

 A professional tax expert can provide you insightful information about your taxes. Once you know where you stand, you will be able to make current and future decisions for your business. Find an experienced tax specialist who can understand the nature of your business and advise accordingly.