Monthly Archives

July 2020

tax credits review

The 5 Most Overlooked Tax Credits

By | Tax, Tax Credits | No Comments

According to the Internal Revenue Service (IRS), taxpayers who claimed deductions on their returns received a total of 747 billion dollars in write-offs. However, many Americans miss out on the opportunity to take home more money in the form of tax credits because they are not familiar with how they work. For instance, one in five people who qualified for Earned Income Tax Credit failed to claim it on their tax returns. 

For you to maximize your earnings, you must know which tax breaks and deductions you qualify for. Here we highlight the top five tax credits that are often overlooked. 

Earned Income Tax Credit

Earned Income Tax Credit (EITC) is a tax credit that is available to people who fall within a specified income threshold. Specifically, it is meant to supplement wages for low and moderate-income workers. It is also provided for people who have lost their jobs, worked fewer hours, or took a pay cut. Even if you previously did not qualify, you are eligible for a break if you meet all the qualifications. 

Basically, the EITC you receive depends on three main factors: your family size, income, and marital status. Worth noting here is that to receive this deduction, you have to file a tax return whether or not you owe taxes. Moreover, you can claim a refund going back three tax years if you were eligible all along but did not apply for it. 

Child and dependent care tax credit

Many Americans miss out on the child and dependent care tax credit due to a lack of knowledge on how it works. Typically, you can legally run up to 5000 dollars in a reimbursement account, which is exempted from normal taxes. However, if you spend more than this amount in a year, you are eligible for a tax credit of an extra 1000 dollars. This means that using the minimum 20 percent of the expenses, you can save at least 200 dollars in taxes.  

Student loan interest  

Student loans can be adjusted according to your income. Thus, if your income falls within a certain range, you do not have to pay a fixed amount every period. What is more, student loan deductions do not require an itemized deduction for you to claim them. 

There are basically three types of deduction you can claim in regard to student loan interests. First is The American Tax Opportunity Tax Credit, which is a tax deduction for college expenses for the first four years of education. The maximum annual credit here is 2,500 dollars a year. 

The second is The Lifetime Learning Credit, which is worth 2,000 per return, applies to individuals who are/were enrolled in an eligible institution. Lastly, The Tuition and Fees Deduction allows taxpayers to deduct up to 4,000 dollars from their income. Being aware of these tax break opportunities can save you a good amount in taxes. 

State sales tax  

Several states in the US have no income tax. They include Alaska, Tennessee, North Dakota, Washington, New Hampshire, Nevada, Wyoming, Texas, and Florida. If you live in one of these taxes, you are eligible for state sales tax. This law allows you to deduct expenditures such as house renovation costs, purchase of cars, boats, and planes, among others. To know what is deductible, you can use the IRS tables or keep a record of all your sales tax in a year and use it to claim these benefits. 

Reinvested dividends   

This is a subtraction that taxpayers miss and one that can end up saving them a lot of money in taxes: Essentially, if you have mutual funds dividend invested in shares, your tax basis increases, thus reducing the amount of capital gain when you decide to sell your shares. Failure to include the reinvested dividends means paying more taxes than you should.  

Being aware of how tax deductions and credits work can go a long way in saving you a substantial amount of money. This is even more true for business owners and startup founders. Incentax LLC can work with you to help you take advantage of the available federal and state tax credits for your business. Contact us to begin enjoying maximum returns with minimum inconveniences!  

tax credits technology company

3 Key Tax Credit Tips for Tech Companies

By | Credit, Tax Credits | No Comments

Running a business is inseparable from paying taxes. As a tech entrepreneur, you must be aware of your tax obligations starting from City Hall up to the federal government.

To keep your taxes under control, you should understand which taxes your firm must pay, the amount of outstanding taxes, and the when to file.

A small mistake can lead to your tax bills go through the roof. But by planning well, taking advantage of available tax deductions, and preparing your tax returns diligently, you can significantly save on the amount of owed taxes. This is where tax credits come in.

A business tax credit is a particular tax incentive that reduces the amount of taxes a business owes the government.  Business tax credits are available to companies when filing their annual tax returns with the International Revenue Service.

Benefits of Business Tax Credits to Tech Companies

To understand the benefits of tax credits to tech companies, we should break down business tax credits further. Business tax credits occur in varied forms. Available business tax credits include research and experimentation, investment, welfare-to-work, and work opportunity, just to mention a few.

Businesses must claim these tax credits by filing the specific forms for that tax credit on the IRS Website. Alternatively, you can seek the help of a licensed tax professional or an accountant. Keep in mind that the applicable tax credit forms and the available credits change yearly. So, before you file your tax returns, you should consult with the IRS website.

The main advantage of business tax credits is that they reduce your tax obligations. Preferably, you should try using all the tax credits you qualify for to reduce the amount of taxes you will incur during tax time.

What is more, if your business exceeds its tax credits for the prevailing tax year, you can apply them to the already filed tax returns. Better still, if you have excess tax credits in the present tax year, you can carry them forward to the subsequent tax year.

To make the most out of your tech company’s business tax credits, do the following:

Understand Your Tax Responsibilities

As an entrepreneur, you should be cognizant of all the local, state, and federal income taxes you might incur.

Your chosen business entity and the number of employees inform your tax obligations. Also, you might incur other local and state taxes depending on your local or state taxing authority.

Identifying all your potential taxes your business will incur will help you plan adequately and increase your business’ bottom line.

Know When to Involve an Accountant

Setting up a general business ledger is among the crucial things to do when launching a tech startup. Despite your activity level, involve an experienced bookkeeper to maintain your accounting records properly.

Accurate accounting records will come in handy when you are filing your annual taxes or seeking outside funding.

In the case of higher-level business activity, consider hiring a full-time internal accountant.

Understand the Available Business Tax Credits

There are a plethora of tax credits available to tech companies. The most popular tax credit is the research and development tax credit. You can use this credit to settle federal payroll taxes. Furthermore, it can be converted into cash in various states.

Understand how you can use these credits to your advantage to reduce your tax responsibilities.  

Given the uncertain business future, an overwhelming amount of taxes can sink your business. By taking advantage of available business tax credits, you’ll be better able to your tech business afloat.

Do you need help in filing your taxes? Contact us today to help you determine the available tax credits you qualify for. We will also advise you on how to cut your tax obligations for the benefit of your tech company. 

tax mistakes new business

5 Common Tax Mistakes Businesses Make

By | Tax | No Comments

Filing your taxes is an obligation that, as a business owner, you have to keep to be on the safe side of the law. Having said this, many business owners tend to make mistakes that lead to tax overpayments, penalties, or even audits from the Internal Revenue Service (IRS). Even worse, deliberate or intentional mistakes can compromise your business and your life as well.  

Getting your taxes under control can save you the trouble that results from the avoidable errors people make during the tax season. For a more in-depth insight, here are some common mistakes businesses need to be aware of vis-à-vis taxes. 

Incorrectly reporting income

Over-reporting or under-reporting your income can have negative consequences on your business. Sadly, this is a common mistake that mostly happens when balancing invoices and business payments. For instance, you may receive payments from clients and fail to record them in that pay period, which may cause a tax overlap. 

Although small errors are largely inevitable, it is advisable to keep records of your tax documents and every transaction you conduct. More importantly, keep your financial records updated at all times so that you have evidence in case there are discrepancies in the IRS records.  

Not separating your expenses   

More often, business owners fail to draw a line between business and pleasure expenditures. This usually leads to a failure to make correct deductions when filing taxes. For example, you can make deductions on fuel money spent while delivering a package to a customer. However, you cannot deduct the money used for activities that are not attached to your business. 

To avoid this common mistake, always ensure that you demarcate between business and personal spending. You can do this by keeping a record of both types of expenditures. Failure to do so can attract unnecessary attention from the IRS. 

Bending or breaking deduction rules

The concept of tax deductions is oftentimes confusing due to the technicalities involved. To minimize mistakes, the IRS has outlined how business owners should make deductions; specifically, it provides actual figures and limits to guide people when filing and submitting their taxes. 

Further, deductions vary based on multiple factors, such as whether your business is a startup, the size, and the nature of the activity (say insurance costs and medical fees). Being up to date with deduction rules is crucial in ensuring you make your tax deductions accordingly. 

Misclassifying employees and independent contractors

As a business owner with employees, you can be liable to penalties for failing to classify your employees. The IRS has issued clear tips to differentiate between permanent employees and contractors; for example, an individual becomes an employee if you dictate when, where, and how the person does a task while one becomes a contractor if they work under a different schedule, use their own tools, and are not eligible for defined benefits. 

Your business should also give every employee a W-2 form while contractors who get paid more than 600 dollars should receive a Form 1099-Misc. If you run a business as a self-employed individual, you should also learn how your taxes apply to avoid penalties. 

Filing your taxes late 

Although this common mistake is quite avoidable, many business owners find themselves locked out of the tax season because they failed to do their taxes on time. Failing to file your taxes within the window period provided can earn you penalty fees, which could put your business on the spot. Having a payment arrangement can save you from being penalized. You can even make quarterly payments to make your work less stressful.

As part of business financial management, minimizing room for tax errors can see you save a lot of money in the end. As long as you emphasize accuracy and accountability, you can be sure to avoid these and other mistakes many businesses make. 

At Incentax, we strive to help businesses maximize their tax credits for maximum returns. Please contact us for more on how we can help you maneuver.  

tax liability new business owner

4 Ways to Reduce Your New Company’s Tax Liability

By | Tax Credits | No Comments

As the owner of a new small business, you will need to take several key steps to ensure your business’s success. One of the most important things that you should do from day one is properly manage your taxes, as not doing so could sink your business.

You will also need to find ways to reduce your tax liability, as doing so can help you to keep your hard-earned money, allowing you to continue to invest in your business. Fortunately, there are many tax-saving strategies that you can employ to reduce your company’s tax burden. Here are just a few steps that you can take to reduce your tax liability this year: 

Contribute to a Retirement Plan

Once your business is profitable, you can reduce your taxes by setting aside money in a retirement account. By placing money in a 401(k) or IRA, you can reap valuable tax benefits as you will get a deduction for your contributions.

For the 2020 tax year, the IRS allows you to put away up to $57,00 in total contributions for retirement into a one-participant 401(k) plan. Doing so gives you a way to prepare for your future while reducing your current tax liability.  

Structure Your Business The Right Way

In order to reduce your tax liability, it is critical to structure your company the right way, as structuring your business improperly could cost you greatly come tax season. For instance, if you have a closely held company where income passes through you as the business owner, then it is likely that you have established your company as an LLC or an S corporation.

While this may be the right choice in some circumstances, depending on your income bracket you may actually benefit by changing your company’s structure to a C corporation.  It can be beneficial to seek professional help when structuring your business in order to ensure that you choose the best option for your company.     

Consider Expanding Benefits Instead of Giving Raises

As your business grows, you may be inclined to give your employees raises to show your appreciation for their hard work as well as to incentivize them to keep working at your company. However, this may not always be the best option for tax purposes. A better option may be to compensate employees by increasing your contribution to their health insurance costs instead of giving them the same amount of money in the form of a raise.

If you gave your employees a salary increase, each employee would have to pay taxes on those wages, and you, as the employer, would have to pay the employer share of the FICA and Medicare taxes on this additional income as well. Instead of giving employees a $400 raise, it may be better for you to offer to contribute $400 more to their medical insurance. This not only prevents you and your employees from having to pay additional taxes, but also, in many instances employer contributions to employee benefits are tax-deductible as a business expense, helping you to save money. 

Find The Right Advisor to Help You Maximize Tax Credits

Of course, a great way to ensure that you are doing everything that you can to reduce your tax liability would be to talk to an advisor that can help you to take advantage of available tax credits. The government offers various tax credits at the state and federal levels for businesses of all types. However, it can be difficult to sort through all of the tax credits available to your business on your own.

Working with a tax credit expert helps ensure that you are doing everything that you can to reduce your tax liability. 

Contact us to learn how Incentax’s streamlined process can help you to identify and maximize all of the tax credits available to your business, as this could significantly reduce your tax liability.