Monthly Archives

June 2020

virtual office compliance

4 Ways to Stay Compliant When Transitioning to a Remote Office

By | Startup, Tax, Tax Credits | No Comments

From solopreneurs to corporations, the concept of a virtual office has been enjoying widespread adoption since Executive Suites pioneered it in 1994. Initially, virtual offices would provide an address. Today, however, premium services include everything from reception services to mail scanning and the use of conference rooms.

The increasing popularity of virtual offices partly results from their low cost. In California, for example, virtual offices can cost as low as $50 per month. But the growing use of remote offices comes with growing implications. With new legal precedents to govern virtual offices, how do you remain compliant? Here are four ways to stay compliant when transitioning to a remote office:

1.Check Work-from-Home Laws

Using a virtual or a remote office means that you will be working from home. In a practical scenario, some of your clients may need to meet you at your house for meetings, if you aren’t renting a workspace or meeting in public places. This implies that the law allows you to carry out business-related activities at your home.

To avoid legal issues, you must determine if:

  • Your type of business qualifies for work from home.
  • Local zoning laws require you to get permits before commencing business.
  • Parking restrictions limit the number of clients who can park at your home.

The law makes it easier for some businesses to operate from home. Practices such as accounting and software engineering can easily transition to remote offices. However, masseurs and hairstylists may have issues as they meet their clients physically and regularly. Before transitioning to a remote office, therefore, you should ensure that your home has the legal capacity to host your specific business operations.

2. Comply with Tax Laws

As far as tax implications go, remote offices do not relieve you tax burdens or the obligation to report tax. This means that you will have to pay tax just like other businesses that operate on-premises. 

Starting with tax deductions, working from home can result in a lesser tax burden. But the law stipulates that you qualify for deductions if the dedicated home office strictly serves work purposes. To put it into perspective, working from the place you enjoy a TV show disqualifies you from deductions.

While checking tax laws, examine legal precedents too. A highlight was the Telebright Corporation, Inc. case. The court ruled that the company incorporated in Delaware had to file corporation taxes with New Jersey since they had a New Jersey-based employee working from home.

3. Track the Finances

Transitioning to a virtual office demands more considerable attention to detail when it comes to money. All incomes and expenses must be recorded appropriately. A sequential filing system works best to preserve invoices and keep a clean record.

Failure to keep track of finances undermines your efforts of complying with tax laws, making you and your business vulnerable to fines. To ease the paperwork involved, you can use accounting software.

4.Hire a Tax Credit Expert

Every year, companies end up burning the midnight oil to meet tax filing deadlines. This is the time when you probably wade through tax records and fill out your tax return. It is, without a doubt, a daunting task — one that is not only frustrating but also time-consuming. 

The good news is that you don’t have to go it alone. Tax credit experts are there to help you keep up with the tax code, and their expertise can help you to ensure that you get all the credits and deductions that you’re eligible to receive. 

Let Incentax Help You Comply

Incentax provides your business with many solutions bundled in one package. We offer a range of tax credits to help your company ease its tax burden, advice on tax deductions, and provide secure networks for remote teams’ collaboration while ensuring your business remains compliant with set laws.

Is your virtual office business struggling with tax and communication issues? Contact us today.

real estate cost segregation

3 Things You Should Know About Cost Segregation for Real Estate

By | Tax | No Comments

For many years, accounting firms have relied on cost segregation as a tool to preserve capital and help their clients benefit from massive tax relief. Through accelerated depreciation, reclassification of assets, and write-downs, a business can reduce their tax burden significantly and free up cash. 

Despite the effectiveness of cost segregation in the past, new tax reforms that went into effect on January 1st, 2018, make cost segregation more beneficial by offering additional depreciation classification, and a rate of up to 100% for new and acquired properties up from 50%. 

But cost segregation for real estate is not for everyone or every business. There are a few things you need to know to help you make the most out of cost segregation. 

1. It is not for all properties 

The benefits of cost segregation are limited to specific properties and beneficiaries. To qualify for cost segregation, the property in question needs to meet the following criteria: 

  • The property should be an investment property. 
  • Permanent residentials that don’t depreciate because of the ownership structure are also considered. 

Additional requirements for properties or companies to qualify for cost segregation include: 

  • Companies that have recently constructed, purchased, or are planning to buy or construct a building.
  • Company-owned or leased buildings that have been recently renovated.
  • The construction, renovation, or purchase cost of the building in question should have cost $300,000 or more.

If the property meets the above criteria, cost segregation could help the company make substantial savings from tax deductions and instantly improve cash flow. 

In addition to the criteria, the application for cost segregation must meet the rigorous application and requirement procedures of the IRS.

2. The cost is not straightforward 

Most companies that have applied for cost segregation have quickly realized the process is not as straightforward as it looks. 

A cost segregation study is not inexpensive, even for an average study. Before jumping in feet first, the expected savings must significantly outweigh the cost of the study

A cost segregation study starts anywhere around $10,000 and could cost as much as $25,000 for a well-done study and a written report. 

Even with the budget, not all properties qualify because the study is only one step of the process. To give yourself the best chance of success, you have to ensure you check on all the right boxes. Some requirements include: 

  • Either you, your spouse of the both of you are real estate professionals.
  • Your W-2 income falls below $150,000.
  • You’re selling the property.

Other than the typical costs, additional charges depend on the location of the building, whether the building is new or existing, and the nature of the property.

There are also other charges that you might incur down the road. To ensure the trouble is worth your while, it’s necessary to involve your accountant to make sure you can qualify for cost segregation before you start the application process.

3. Cost segregation application doesn’t follow the calendar year 

Unlike other tax processes, cost segregation doesn’t have to be determined by December 31st. You can do it in March or April of the prior tax year. 

It can be done at any time of ownership, even by the current owners, which means time is not a limitation, and you can start enjoying the tax deduction at any time. You can also extend the study to other rental properties in your portfolio.

Using the savings you accumulate on one property, you can offset the other properties, or even offset your active W-2 income taxes. 

Even though you’re not pressed for time, you can make more savings by requesting for a cost segregation study the year the property is placed in service by the current taxpayer.

Making the most out of cost segregation requires a strategic approach with the help of an expert who understands the process. If you would like to know if you qualify for a cost segregation study and learn more about this monumental tax-saving opportunity, get in touch today. 

construction business tax credits

4 Tax Credits Your Home Construction Business May Be Eligible For

By | Tax Credits | No Comments

Home construction businesses often reduce their tax burden by depreciating fixed assets (such as vehicles, machinery, and equipment), writing off expenses, and leveraging tax credits. A lot of tax credits go overlooked, leading to smaller home construction businesses spending more money on taxes each year.  

State and federal tax credits reduce tax demands and allow businesses to maintain higher cash flow. 

Tax credits and incentives that your business may be eligible for include:

1. Work Opportunity Tax Credit

The Work Opportunity Tax Credit is offered on the federal level and provides employers that hire workers in targeted groups with a tax credit. If you hire employees in the following categories, your business may be eligible for this credit: 

  • Veteran 
  • Ex-felon 
  • SNAP benefit recipient 
  • SSI recipient 
  • Long-term unemployed recipient 
  • IV-A recipient 
  • Long-term family assistant recipient 
  • Others 

The federal government outlines all of the targeted groups that may be eligible under the credit. Eligibility will also depend on the hiring dates and the qualified status of the employee. 

Tax credits range from $2,400 for a qualified employee to $9,600 for a veteran who is qualified. 

If your company is considering hiring a veteran, the tax credit is another reason to hire from this group.

2. R&D Tax Credit

Construction companies can offset research and development (R&D) costs with the R&D tax incentive. Construction businesses that qualify for these incentives often don’t leverage them because they believe they’re only available to big businesses. 

The R&D incentive is a dollar-to-dollar reduction and can be used to offset costs such as: 

  • Hiring and paying employees involved in R&D 
  • Supplies that were part of the process 
  • Contract costs, up to 65%, paid to others that were doing research 

Qualifying for these credits requires a business to meet certain requirements. A business may be eligible for this tax credit if they were involved in: 

  • Creating or improving efficiency and reliability 
  • Designing of systems, such as plumbing or HVAC, for new usage or better efficiency 
  • Experimenting with materials or alternatives to create new infrastructure 
  • Improving or designing of green buildings 
  • Engineering and design that is unique 

Home construction businesses can benefit from R&D tax credits for a lot of activities, including exploring new construction techniques, improving safety or quality, and building or improving equipment.

3. 45L Green Building Incentive

The 45L Green Building Incentive, or New Energy Efficient Home Credit, allows for contractors to receive a $1,000 to $2,000. The credit applies to homes that are up to three stories and varies depending on a few factors. 

  • If heating and cooling consumption are 50% below comparable buildings, a tax credit of $2,000 is available. 
  • Manufactured homes that do not meet the 50% mark may be eligible for a $1,000 credit if it meets Energy Star Labeled Home requirements, FMHCSS requirements and has heating and cooling reductions of 30% versus comparable homes. 

The New Energy Efficient Home Credit is one that home construction businesses may be eligible to receive when focusing on energy-efficient homes.

4. Disabled Access Credit

Businesses that are accommodating of people with disabilities may be eligible for the Disabled Access Credit. Businesses will need to earn $1 million or less and have less than 30 full-time employees to be eligible. 

The IRS credit is 50% of the eligible expenses between $250 and $10,250. 

There’s also the Barrier Removal Tax Deduction, which allows for up to $15,000 a year in deductions for expenses relating to common barriers relating to people with disabilities, such as architectural and transportation. Removing barriers for the elderly or persons with disabilities to allow access to your business falls under this deduction. 

Construction businesses can leverage and combine all of these tax credits to reduce their annual tax burden. 

Contact us today to see what tax credits your business may be missing. 

R&D tax credits recession

How the R&D Tax Credit Can Help in a Recession

By | Research and Development Tax Credit, Research and Development Tax Credits, Tax, Tax Credits | No Comments

Recessions are characterized by negative growth in countries’ GDP and a significant slump in economic activity and consumer spending. Such economic downturns impact both small and large businesses, especially if they still have to pay workers and keep up with their tax obligations at the same time despite an unfavorable business climate.  

Several tax incentives can cushion businesses against tough economic times, such as the ongoing coronavirus crisis. As businesses throughout the United States struggle with the crisis, R&D can play a critical role in spurring economic growth. R&D tax incentives reward companies for undertaking research and development. Generally, there are two types of incentives that are used to encourage R&D:

  • Tax credits
  • Tax deductions

R&D tax credits act as buffers that help lower your company’s tax liability. They can also become refundable if no tax is due. Since they directly offset your tax liability, R&D tax credits can be even more valuable to you than typical tax deductions. In America, more than 20 states offer tax credits over and above the federal tax credit.

The R&D tax credit is meant to help businesses of all sizes and not just big corporations that have research labs. If your company is involved in any of the following activities, you qualify for the R&D tax credit:

  • Designing or development of new processes or products
  • Improves existing processes or products
  • Improves or develops existing software or prototypes

Claiming the R&D Tax Credit

Several factors should be considered before claiming the R&D tax credit. Nonetheless, the potential savings make leveraging the credit a worthwhile investment. You can claim the credit for prior tax years as well as the current tax year. Companies should document their R&D activities continuously since this puts them in a position to claim the credit.

Evaluating and documenting your company’s R&D activities helps you to establish the expense of each research activity. Although taxpayers can estimate some of their research expenses, they need to have a factual basis for any assumptions that they use to come up with the expenses. Some of the documentation required to make an R&D tax credit claim include:

  • Payroll records
  • Project lists
  • General ledger expense details
  • Project notes

When these records get combined with credible testimony from your employees, they form the basis of your R&D tax credit claim. If your company is claiming the credit already or you want to determine your eligibility status, you should be methodical when evaluating and documenting research activities for future R&D tax credit claims.

Failure to do so puts you on the radar of the IRS. You are also likely to see your credit claims getting disallowed. Sometimes, companies tend to think that they don’t qualify for R&D tax credits. Common factors that might make you have this mindset include:

  • Failure to pay federal income tax. Startups and SMEs can apply up to $1.25 million in R&D tax credit (or $250,000 annually for five years) to offset the FICA portion of annual payroll taxes. To quality, the companies must have gross receipts worth less than $5 million.
  • Not focused on R&D. Companies that don’t own R&D laboratories but still undertake R&D or experimentation on their production floors also qualify for the R&D tax credit. Therefore, eligibility isn’t limited to technology companies or companies that have dedicated research departments.

During tough economic times such as recessions, companies should find ways of maximizing their return on research and development investment. R&D incentives such as tax credit claims can cushion your business from the effects of an economic downturn. For more information about R&D tax credits and how you can reduce your company’s risk of IRS penalties, contact the tax professionals at Incentax today.

stimulus bill tax credits

How Companies Can Take Advantage of the 2020 Stimulus Bill

By | Tax Credits | No Comments

The novel COVID-19 epidemic has hit American businesses hard. Be it engineering, technology, healthcare, or manufacturing; all sectors have taken a significant hit. Amid piling expenses and tax obligations, more companies are reporting zero revenues as a result of government-ordered quarantine. 

Congress recently cleared a $2 trillion economic stimulus package to help stabilize the American economy. Of this amount, $300 billion is meant to cushion SMEs against the devastating financial fallout of the COVID-19 epidemic. Businesses are not only being provided with loans, but they will also be allowed to defer paying a portion of their payroll taxes to the IRS. 

Eligibility for the Economic Stimulus Package and Tax Relief

Not all businesses will qualify for tax relief to receive part of the $300 billion-plus package. The stimulus bill provides clear guidelines regarding companies that are eligible and how their loans and tax relief will be structured. Companies across all American territories and states qualify. Conditions for eligibility include:

  • A company should have fewer than 500 employees
  • Self-employed entrepreneurs, sole proprietors, and independent contractors are eligible
  • Businesses in rural or under-served markets will be prioritized. This includes businesses that are run by economically and socially disadvantaged individuals, veterans, and women. 

The Economic Stimulus Bill and Tax Relief

Arguably, the most significant tax relief that the economic stimulus bill provides is the payroll-tax deferment. If your company continues to employ workers during the coronavirus crisis, the stimulus bill gives it a tax credit. In this case, you’ll be able to defer your payroll taxes even as you continue paying employees. You can delay paying your payroll taxes for 2020. In 2021, you’ll pay 50% of your taxes, and the other 50% the following year. 

Offering deferral on these payments will go a long way in easing the liquidity crunch that you might be experiencing. The tax relief will help you accumulate the cash needed to meet other financial obligations that you have and pay your share of taxes at a later date. However, your share of the Medicare payroll tax remains due as usual. 

A Financial Shot in the Arm

The stimulus package will come in handy for both established and up and coming businesses since it gives them cash flexibility during this tough economic period. The stimulus bill doesn’t take away your tax burden altogether. Your taxes won’t be forgiven. Instead, you will only be afforded time to send a check to the IRS at a later date. 

Companies that retain workers during the coronavirus crisis will also qualify for a payroll-tax credit. This includes “non-essential” businesses that have been ordered to close. Nonetheless, you must keep your workers employed during the crisis. You should also keep in mind that if you apply for the small business loans offered under the stimulus bill, you disqualify yourself from the payroll-tax credit. 

Losses incurred in the past will also be considered as companies fulfill their tax obligations. For instance, losses incurred between 2018 and 2020 will get carried back for a maximum of five years. Therefore, a company can retroactively deduct the losses against profits made in the previous five years to claim immediate refunds of past taxes that got paid on those profits. 

Taking Advantage of the Stimulus Bill with Incentax

Navigating the tax world can be challenging, especially during the ongoing coronavirus crisis. The benefits of working with tax professionals include:

  • They can help you implement a flexible deferred payment program
  • You won’t get caught on overlooked tax obligations
  • You won’t face the IRS on your own

Although the coronavirus crisis has crippled all sectors of the American economy, you can still ride the tide by working with tax professionals to take advantage of the stimulus bill fully. With Incentax, you won’t have any issues with the IRS once the epidemic is over. Contact us today to learn more about our services.