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research and development tax credit

R&D Tax Credits: An Added Benefit to the Next Relief Package?

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

A frequently overlooked tax deduction for businesses big and small is R&D tax credits. R&D stands for “Research & Development” for any business that managed such activities in the last year or prior years.

For some major business tax benefits, this is still one of the most significant. However, some changes to R&D taxes began in 2017. Through the Tax Cuts and Jobs Act, companies could no longer deduct R&D costs in the same taxable year.

Further, the new law now demands companies write down these expenditures over the next five years. Now manufacturers, in particular, look to Congress’s relief bills to see if R&D credits become restored.

How Did a Business Qualify for R&D Tax Deductions?

To qualify for R&D tax deductions prior to the 2017 law, a company had to develop new products and processes, enhance those products, or improve their prototypes. Manufacturers clearly fall under this category, making them one of the most important sectors to benefit from R&D tax deductions.

Now with the new tax laws, they may begin to hurt exponentially. Prior, manufacturers and all who qualified could prove various records to qualify for this tax credit.

It usually involved presenting payroll records, expense detail, notes on all projects being developed, plus any employee testimony. While this probably sounds a bit cumbersome, it was more than worth it.

Besides, many small businesses could also claim the credit against their Alternative Minimum Tax. As the economy falters, though, analysts wonder what the R&D tax reductions mean for manufacturers and small businesses.

The Hope for R&D Tax Relief in a Relief Bill

U.S. Congress is still going through the process of passing a relief bill to help businesses struggling through COVID-19 closures. Many business analysts contend that R&D tax relief in a relief bill is a must to help manufacturers survive in volatile times.

Congress clearly did not see COVID-19 coming when they enacted the 2017 tax law changes. Now the need to carefully document their expenditures over the next five years is sure to create some big problems for manufacturers in an age of economic uncertainty.

As Bloomberg Tax points out, competitiveness in manufacturing could become affected by 2022, leading to those same manufacturers going overseas to find relief. Over in Europe, R&D tax credits continue without any cuts, making it a more attractive place to base operations.

Still, Congress might fix the R&D tax issue here since one particular bill is on the table. The problem is convincing Congress to include it in the relief bill everyone hopes becomes a reality.

A Proposed R&D Tax Bill

A rare bipartisan bill is out there waiting for passage related to R&D tax relief. Back in 2019, Reps. John Larson (D-Conn.) and Ron Estes (R-Kan.) created a bill asking for the restoration of the original R&D tax law.

This bill seems to have become lost in the shuffle recently with various lobbyists pushing to include it in a future relief bill package. One major lobbying group is Intel. Sharon Heck, Intel’s CTO and Treasurer (and head of the R&D Coalition) is at the helm of getting this bill passed.

Last spring, Heck and the entire R&D Coalition sent a letter to Congressional leaders asking them to take action. Without some kind of passage soon, it could end up cutting 23,400 R&D jobs through 2022, leading to numerous ripple effects in the U.S. economy.

As with everything else, this is up in the air, though we continue to look in on it to update you with the latest tax information.

Contact us here at Incentax LLC to learn more about today’s most pressing tax issues.

startup tax tips credits advice

How to Calculate Your Startup Business Taxes

By | Tax, Tax Credits | No Comments

All tech startups face one common issue: paying taxes to the IRS. You are still trying to find your footing in the business world, and just when you think you couldn’t spend more money, the government steps in to remind you that you have a statutory obligation to pay taxes.

Keeping up with your tax obligations can be tedious, but any misstep can result in huge tax bills.  Here are the most common taxes you should always keep in mind.

Are Tech Companies Tax Exempt?

No. Tech companies are required to pay federal tax. For a company to be tax-exempt, the founders shouldn’t make any profits from it. These companies generally fall under religion, public social benefits, culture & arts, human services, or health organizations.

Even though tax-exempt companies don’t have to pay federal tax, they are still liable for local income & state tax, and all donations made to them are tax-deductible.

Which Types of Taxes Should Tech Companies Calculate?

The type of taxes you pay are mainly dependent on your business structure and not the industry. Tax obligations often change on an annual basis, so it’s important to keep yourself regularly informed.

As a business owner, you must start planning for the following taxes.

1.   Employment tax

If your startup already has employees, you will have to file employment taxes to the federal government.

These taxes include income taxes that you withhold from the employees and submit it to the IRS on their behalf, including; Federal Insurance Contribution Act (FICA) taxes, Additional Medicare Tax, Federal income tax, and Federal Unemployment Tax Act (FUTA) taxes.

2.   Income tax

These are taxes imposed by the government on individuals and businesses based on their income. According to the law, income taxes should be filed annually, so that one is able to determine their tax obligations.

Income taxes are calculated based on the structure of your business (sole proprietorship, partnership, corporations). If your tech startup is a partnership, you won’t have to pay income taxes but will be required to file an information return.

3.   Excise tax

Excise tax is not mandatory for all businesses. It is only imposed on businesses that deal with manufacturing-specific goods (fuel, tobacco, alcohol, etc.) or those that use certain facilities and equipment or businesses. Most often, the excise tax translates as increased prices for the consumer. If you also sell tech products, find out if they are liable for excise tax and the forms you have to file.

4.   Self-Employment tax

For employees, the employer withholds a certain amount of money from their paychecks for Medicare taxes and social security. As an entrepreneur, however, you have to pay these taxes on your own via self-employment taxes.

Only 92.35% of your net income is subjected to this tax, and to calculate this, you deduct all your expenses from your gross earnings. There are exemptions to this tax, but generally, all earnings from self-employment above $400 should be taxed.

The Schedule SE on Form 1040 can be used to calculate this tax.

5.   Estimated taxes

This tax is imposed on income that is not subject to withholding, including interest, alimony, rent, dividends, etc. If you have additional income from other sources, it is advisable to conduct a paycheck checkup regularly, to avoid being hit with hefty bills at the end of the year. 

Let Incentax Help You Stay On Top of Your Taxes

Understanding the complex rules and requirements for tax incentives can be difficult and you may need a professional tax incentives advisor to help you navigate these murky waters. We are here to guide you on how you can get the most out of your tax credits and incentives.

Contact us today for a consultation on how you can effectively use your startup’s tax credits!

disabled access tax credit accessible building

Does Your Business Qualify for the Disabled Access Credit

By | Tax Credits | No Comments

It’s important to be as thorough as you can while preparing your business for taxes since there could be credits available for your business that you haven’t considered before. A good example of this is the “Disabled Access Credit.” Here’s some information about how your businesses may be able to qualify for this credit.

What Is the Disabled Access Tax Credit?

This credit helps businesses that go out of their way to accommodate those with disabilities. There are a few credits that fall in this category, with the Disabled Tax Credit being the first.

This is a non-refundable credit available for small businesses. It comes into effect when a business has expenditures from providing easier access to employees who have disabilities. In order to eligible, your business must have earned $1 million or less during the year.

Alternatively, it could have no more than 30 full-time employees during the year past. You can take the credit for every single year that you have expenses for offering access. The applicable form is Form 8826.

Other similar credits include the Barrier Removal Tax Deduction that applies to businesses that remove transportation and architectural barriers that get in the way of the elderly or the disabled. Another is the Work Opportunity Tax Credit, which provides credits and incentives to hire disabled employees. All these credits are mentioned on the same page.

Details and Examples

The minimum amount for Disabled Access Credit is $250, with the maximum amount being $10,000. The credit can count for extra access options you add for both employees and customers who need extra help due to having visual disabilities.

It could apply if you add sign language interpreters to help the deaf. Perhaps the expense you have applies to your decision to buy special adaptive equipment to help improve access. It could work under the circumstances where you added braille, extra audio take, computer materials or even just spent extra on large print for those who had trouble seeing.

It could also count towards fees for consulting services as well, in the right circumstance.

So, a specific example would be if you added access bars in restrooms, created a ramp for wheelchairs, and widened some doors for easier wheelchair access.

It’s worth noting that there are other tax credits related to disability access that you may be eligible for as well if you run a home construction business specifically. In general, it’s important to check for every potential credit you can.

Getting Started

The specific provisions for getting this Disability Tax Credit, as well as many other credits available for businesses can be in constant flux, especially in times such as these.

This is exactly why it’s important to make sure that you get help in understanding and preparing your taxes in the exact right way to receive the credit. This particular credit has limits for each improvement you make, for example, making it so that maximizing the credit will work easier if you make many improvements rather than just one or two large ones.

Making different improvements across different types of access can be advantageous here since it will both make the best use of the credit, and be the most helpful to the widest range of people.

It’s also important to consult with experts in case there are particular nuances of the credit to keep in mind in terms of how it applies to your specific business.

For more information about getting this credit and possibly many others depending on your situation, please make sure you don’t hesitate to go ahead and contact us at Incentax LLC today.

business tax credits and deductions

All About Business Tax Credits and Tax Deductions

By | Tax Credits | No Comments

Are you looking to reduce your taxable income? Then you must leverage on your business tax credits and deductions. However, this is easier said than done.

In the U.S., some businesses fall behind their tax filings for various reasons. And they eventually pay huge penalties depending on how late they file them. So, as a savvy entrepreneur, you should file and pay your tax returns punctually.

Remember every business is liable for taxes for one key reason — taxes spur economic growth and development. It is through tax revenue that governments fund vital public investments and social for the larger society’s benefit.

But to maximize your tax savings, you should understand the differences between business tax credits and tax deductions.

Comparing Business Tax Credits and Tax Deductions

Business tax credits and tax deductions are the most rewarding elements of preparing tax returns. Both help to alleviate your business’ tax bill.  

So, when looking to offset your firm’s qualifying expenses, you can claim a tax credit or tax reduction, or both.

But how do business tax credits differ from tax deductions?

Business Tax Credit

A business tax credit is a dollar-for-dollar reduction of the outstanding income tax.

A business tax credit directly lowers your tax liability by its stated amount. So, if your tax bill amounts to $25,000, a $2,000 tax credit would reduce it to $23,000.

Below are the three most common types of business tax credits:

Small Employer Health Insurance Tax Credit

Also known as the Small Business Health Care Tax Credit, the Small Employer Health Insurance Tax Credit applies to businesses that successfully enroll in the SHOP (Small Business Health Options Program).

To qualify for the SHOP, you must have less than 25 full-time employees receiving an average annual salary of up to $50,000. Additionally, you must provide no less than 50% of your full-time workers’ premium and offer coverage to your entire full-time workforce.

The Small Employer Health Insurance Tax Credit is refundable and counteracts up to 50% of your premium costs.

Disabled Access Credit

Have you ever spent on offering disabled individuals pertinent accommodations in your business? Well, you might qualify for the Disabled Access Credit.

Better still, if you meet the IRS’s definition of small businesses, you can also claim the Disabled Access Credit. But you must have other qualifying expenses like the removal of barriers to ease accessibility.

As a small business owner, you can claim up a maximum Disabled Access Credit of $5,000. This credit is worth half of your total eligible access expenses.

FMLA Tax Credit

In case you willingly offer your workforce paid family and medical leaves, you might qualify for the nonrefundable FMLA Tax Credit.  

You can claim at least 12.5% of FMLA Tax Credit if you foot 50% of your workers’ wages. If you bear 100% of their wages, you qualify for up to 25% of the FMLA Tax Credit.

Other common types of business tax credits include the Work Opportunity Tax Credit, New Employment Credit, Federal Empowerment Zone Tax Credit, and Research & Development Tax Credits.

Business Tax Deduction

A business tax deduction alleviates your total taxable income.

For instance, if your taxable income is $100,000, a $1,000 business tax deduction would reduce it to $99,000. But it will not reduce your tax bill by $1,000.

So, while a business tax credit reduces your tax bill directly, a business tax deduction reduces the amount upon which your tax bill is based.

Here are the most common business tax deductions:

Charitable Contribution Deduction

If you donate your business time, property, or funds to 501©(3) status organizations, consider claiming the Small Business Charitable Donations Deduction.

To claim the charitable contribution deductions, you must be eligible to donate to a qualifying nonprofit.

Business Mileage Deduction

Do you have to drive for business? Consider claiming the Business Mileage Deduction for the miles covered on business-related errands.

You can use the actual expense method or the standard mileage rate when claiming the Business Mileage Deduction.

Home Office Deduction

If you use a part of your home for business, you deserve the Home Office Tax Deduction.

To attain the Home Office Tax Deduction eligibility, you must regularly use a dedicated part of your home for business purposes. And your home must the main workplace.

Using the IRS’s simplified method, you can qualify for up to $1,500 in Home Office Deductions.

Which is better between a business tax credit and a tax deduction?

Alleviating your tax liability does not always entail an either-or decision. Luckily, you can claim both business tax credits and deductions to optimize your tax savings.

But here is the rub — you cannot claim both for the same expenses. Also, tax credits generally offer more significant tax relief than tax deductions.

Note: If you must decide between a tax credit and a tax deduction, first compute both to determine which gives you the highest tax savings.

Wouldn’t you like to relieve your business of tax liabilities?

Contact us today and our tax credit experts will take you through the baby steps towards attaining business tax compliance.

tax credits for non-profits

$9,600 in Payroll Tax Relief for Non-Profits with This WOTC Program

By | Tax Credits | No Comments

Do you know about Internal Revenue Service Forms 8850, 5584, and 5884C? If not, the odds are that your organization has been missing out on thousands of dollars in tax credit. Each year, employers claim about $1 billion in tax credits under the Work Opportunity Tax Credit (WOTC) program. The great news is that your organization, whether it’s for-profit or non-profit, can be eligible for the WOTC.

Get WOTC-Qualified Groups on Board to Qualify 

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire and retain individuals from certain target groups with significant barriers to employment. To be eligible for the WOTC, your company must employ individuals from the following target groups:

  • Veterans
  • Food stamp recipients
  • People with a felony on their record
  • Long-term unemployed
  • Temporary Assistance for Needy Families recipients
  • Vocational Rehabilitation Referrals
  • Designated Community Residents
  • Supplementary Nutrition Assistance Program recipients
  • Supplemental Security Income recipients
  • Summer Youth employees (living in empowerment zones)

A great way to pre-screen candidates to see if they are WOTC-eligible is to include page one of the IRS Form 8850 in your job application process. Once the successful candidates join your company, you should review the completed 8850 pre-screening form to determine if the new hires belong to any of the WOTC-eligible target groups.

Complete Minimal Paperwork to Claim WOTC Benefits 

As an employer, you make the hiring decision and complete minimal paperwork to apply for the credit. You are required to complete the IRS Form 8850, Prerecorded Notice and Certification Request for the WOTC. You’re also required to file either Form 5584 (for-profit) or Form 5884-C (non-profit). Another form that you should complete is the ETA Form 9061.

After completing and signing these forms, submit them to your local State Workforce Agency (SWA). These forms should be submitted within 28 days of the new hires’ start date. You can then wait for SWA to make the final determination, which will indicate whether the new hires are certified as WOTC-eligible for any of the target groups. After the new hires are certified, you can file for the tax credit with the IRS.  

Earn Between $1,200 and $9,600 per Employee

Depending on the new employees’ target group and the number of hours they’ve worked in the first year, you can earn a tax credit of between $1,200 and $9,600 per employee. Your new employees must have worked at your company for over 120 hours in the first year for your company to receive the tax credit. Also, there’s no limit on the number of qualified hires you can claim.

If your new hire is a long-term TANF applicant, you may claim a tax credit equal to 40% of the new employee’s first-year wages, up to the maximum tax credit, if the new employee works over 400 hours. In the second year, you can claim a tax credit equal to 50% of the second-year wages.

If your new hire is classified under other WOTC-eligible target groups, you may claim a tax credit equal to 25% of the employee’s first-year wages, up to the maximum tax credit. If the employee works over 400 hours, you may claim a tax credit equal to 40% of the employee’s first-year wages, up to the maximum tax credit.  

Receive Your Tax Credits Hassle-Free with Incentax

To get the maximum tax credits that you deserve without any of the stress involved in the claim process, you’ll need an experienced and dependable expert by your side. Since our founding in 2011, we’ve been offering a diverse range of tax credit opportunities that benefit companies in various fields and industries. We’ve assisted hundreds of companies qualify for federal and state tax credits. Contact us today to find out how we can help your organization.

r&d payroll tax credit

R&D Payroll Tax Credit: A Startup’s Cash Flow King

By | Startup | No Comments

Startup companies across the world kick off operations under a limited budget. This is because it takes a considerable amount of time and effort for small companies to build up capital. 

Coupled with tough economic times and stiff competition from rival companies, startup companies strive to survive the pressure in order to stay afloat. In this case, success never comes along without setbacks and financial constraints. Therefore, it is necessary to roll out strategies that will help the company maintain effective cash flow.

 In other words, cash flow management is critical in the survival of a company. Mismanagement of cash flow can hurt a company’s financial health, leading to bankruptcy and even total collapse. 

How do you achieve your financial objectives? What measures have you put in place to sustain a healthy financial cash flow? The R&D payroll tax credit is a crucial cash management strategy that can significantly help your company save a considerable amount of money incurred in taxes.

Why the R&D Payroll Tax Credit?

The research & development payroll tax credit is an integral aspect of cash management that startup companies need to embrace. Typically, the credit helps your new company to offset payroll taxes. In this case, new companies and startups can apply for the R&D tax credit against taxes incurred on their payroll. 

The tax credit on payroll taxes is rolled out for five years. This helps startups to save a considerable amount of money.

A payroll tax credit reduces the monetary burden of your company through the reduction of income tax paid to the government. In some cases, eligible companies can claim up to $ 250,000 in payroll tax credit per year. This helps you offset a considerable amount of money that could have been inquired in paying taxes. 

Who Qualifies for the R&D Payroll Tax Credit?

To qualify for R&D payroll tax relief, companies are required to have less than $5 million in annual gross receipts to qualify for R&D tax relief. In cases where a business is new, gross receipts must be less than $5 million in limits within 12 months.

Under circumstances where an individual runs similar businesses sharing common ownership, R&D payroll taxes are calculated in a combined format to ascertain eligibility under this category.

The Internal Revenue Service  (IRS) has established the following guidelines about gross receipts in calculating payroll taxes:

  • All the cash received for services rendered
  • Revenue generated from investment and interest income
  • Total sales – referred to as allowances and net returns

Other activities that qualify for R & D payroll tax credit include:

1. Technical Uncertainty

Activities under this segment include efforts to improve a product or service. This may include inventions, software, and techniques. 

2. Experimentation

This includes processes meant to solve a particular technical uncertainty. Some aspects of the process are not limited to systematic trial and error, modeling, or any other method.

3. Technological Tasks

Experimentation relies on sciences. Some aspects of this category include engineering, computer science, and biology. The threshold also includes developing software for internal use.

These activities must be undertaken within the United States and not funded through alternative funding streams.

Unlock the Power of Tax Credits

The R&D payroll tax credit is integral for your new business. It will help you cut on costs inquired in paying taxes and help you grow. Contact us for help in filing for the tax credits you and your business are eligible for.

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How the WOTC Can Help When Hiring Long-Term Unemployed Workers

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Most employers are looking to hire candidates with the best skills, experiences, and ability to match a job description. But unfortunately for job seekers, the longer they’re unemployed, the lower the odds they’ll get considered, according to a report by the World Economic Forum. A long gap in a resume has long been considered an obvious red flag.

However, did you know that hiring the long-term unemployed can also be a great opportunity for your company? According to Deloitte, hiring this often overlooked cohort can bring real value to your business. Evidence suggests that organizations that hire the long-term unemployed have a more loyal and reliable workforce with higher retention rates.

That’s not all. The federal government and state authorities have devised different incentive programs to address the thorny issue of long-term unemployment in the country. One of these incentive programs is the Work Opportunity Tax Credit (WOTC).

What is the WOTC?

The Work Opportunity Tax Credit (WOTC) is a provision of the Internal Revenue Code that allows organizations that hire persons from certain target groups who’ve consistently faced huge obstacles to employment. The long-term unemployed are among the WOTC-eligible target groups.

How Does the WOTC Work?

The amount of the WOTC is computed as a percentage of qualified wages paid to eligible employees during their first year of employment, up to a statutory maximum. As an employer, you may claim a tax credit equal to 40% of an eligible worker’s qualified wages if the worker has worked for at least 400 hours during their first year of employment, up to a statutory maximum.

If an eligible worker has worked for less than 400 hours, but for over 120 hours, you may claim a credit equal to 25% of the worker’s qualified wages. If the employee has worked for less than 120 hours, you may not claim the WOTC.

How to Qualify for the WOTC

While anyone who hasn’t been working for more than 27 weeks without success fits the description of a long-term unemployed individual, not everyone under that description is eligible for the Work Opportunity Tax Credit. For instance, you (as an employer) won’t get the tax credit if you hire the following groups of people:

  • Majority owners of your business
  • Former employees
  • Your relatives or dependents

Assuming that the long-term unemployed individuals that you’re hiring are eligible for the WOTC, there are several steps to take to ensure that your company qualifies for this tax credit. Firstly, you and the applicants must complete two forms during the hiring process and before the new hires start working. These two forms are the IRS Form 8850 and the Dept. of Labor Form 9061.

As soon as you hire a long-term unemployed worker, you’re required to submit the two forms of your state workforce agency for a determination on their eligibility for WOTC credit. You must submit the two forms no later than 28 calendar days after your new hire starts working. Failure to submit these forms as required will disqualify you from getting the tax credit.

Filing for the Work Opportunity Tax Credit

After receiving a letter from your state’s workforce agency confirming that your new employee is WOTC-eligible, your company becomes eligible for the tax credit. You can claim the tax credit by completing and submitting IRS Form 5884 with your business tax return.

But truth be told, figuring out your Work Opportunity Tax Credit is a complex and potentially painful process. Although there’s a lot of advice to be found online, each situation is unique. Even if you’re familiar with taxes, you might want to enlist some assistance from a tax credit expert.  

Get in Touch with Incentax Tax Credit Experts

Since 2011, Incentax has been helping companies in a wide range of fields and industries to qualify for State and Federal Tax Credits. Our dedicated Tax Credit Experts implement a proven, client-centric process to identify and maximize all available tax credits for our clients’ advantage.

If you have WOTC-eligible populations in your company and are interested in maximizing your tax savings, contact us today to learn more about how we can help.

small business tax credits

4 Key Tax Credits for Small Business Owners

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As a small business owner, it is important that you take advantage of all the tax credits available to your company in order to reduce your tax burden. Yet, you may find yourself asking a lot of questions about small business tax credits if you are not familiar with them and the plethora of tax credits that may be available to your business. To help you save money on your taxes this year, here is a look at what you need to know about tax credits including how you can find tax credits your business may qualify for.

What Is a Tax Credit?

While you likely already know that tax credits and deductions can be helpful in reducing the taxes you owe, you are not alone if you are unsure what the difference between the two is. A tax credit is a dollar amount that can be subtracted from the amount of taxes you owe. For instance, a $400 tax credit would reduce your owed taxes by $400. Alternatively, tax deductions reduce your business’s taxable income, which indirectly lowers your taxes owed. In other words, a $400 deduction would reduce your taxable income by $400, slightly reducing your taxes. Tax credits are then often seen as the superior tax break, as they can significantly reduce your tax burden. The great thing about tax credits is that you can use as many of these credits as you qualify for. Yet, how can you find relevant tax credits for you and your business? Keep reading for a look at 4 of the most common tax credits available to business owners. 

Earned Income Tax Credit

Has this been a bad year for your business? If so, you may qualify for the Earned Income Tax Credit (EITC). This tax credit provides a tax break to people who are employed but earn a low to moderate-income. Just because you are a business owner, this does not mean that you can’t qualify for the EITC, as you are also self-employed. Many business owners who may be eligible for the EITC do not claim it because they believe that it only applies to their employees. However, depending on your financial situation, you may qualify for this tax credit, which can help to ease your overall tax burden. 

Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to businesses that hire employees from certain target groups who have historically faced barriers to employment. Former veterans and long-term unemployment recipients are primary targets of the WOTC. Depending on the employee’s salary and the target group they come from, employers can claim up to $9,600 per employee they hire under the Work Opportunity Tax Credit. 

Credit for Small Employer Health Insurance Premiums

One of the many provisions in The Affordable Care Act (Obamacare) includes a small employer health insurance tax credit aimed at helping small businesses who provide their employees with health insurance. The credit is available to small businesses that pay at least half of the cost of their employees’ health insurance premiums. If you qualify, this tax credit is worth 50% of the amount you paid towards insurance premiums (however, it is reduced to 35% for tax-exempt businesses). In order to qualify for this premium, your business has to have fewer than 25 full-time employees, you must pay an average wage of less than $51,600 per year, and you must have purchased your company’s insurance plans through the Small Business Health Options (SHOP) program. 

Research and Development Tax Credit

In order to encourage domestic research and development, the Research and Development Tax Credit can help to significantly offset your company’s R&D costs. If you spent money developing a patent, building new software, working on a prototype for a new product, or on any other kind of research, you may qualify for this tax credit which can cover up to 20% of your R%D expenses. However, only certain kinds of research qualify, and determining your eligibility can be complicated, which makes it important that you work with a qualified tax professional who can help you make the most of this tax credit. 

Taking advantage of tax credits can be a great way to significantly reduce your company’s tax burden. However, with a multitude of tax credits available, it can be difficult to determine which ones your business qualifies for. Contact us to learn how Incentax’s streamlined process can help you to identify and maximize all the tax credits available to your business.

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How the Empowerment Zones Program Could Help Your Business

By | Tax Credits, Tax Incentives | No Comments

In 1993, Congress passed the Empowerment Zones and Enterprise Communities Act to alleviate poverty in certain regions across the country. The program targeted six strategic cities: New York, Chicago, Atlanta, Baltimore, Detroit, and Philadelphia-Camden. The goal was to uplift the lives of poor communities living in these regions.

The Empowerment Zones program, albeit ambitious, seems to have been forgotten. Here is a brief overview of the fundamental details of the EZ program and how it might apply to your business.

Qualification Requirements for Communities

The Empowerment Zones program was intended to rejuvenate strategic economic regions that were experiencing a decline in growth – Detroit is an excellent example. The program planned to incentivize the private sector to set up businesses in these locations and, by doing so, spur long-term economic growth.

The main requirement for a community to qualify for designation as an Empowerment Zone was a clear economic distress demonstration. Qualifying factors supporting economic distress included:

  • High unemployment levels
  • A poverty rate of at least 20%
  • A declining population rate
  • A clear pattern of divestment by existing businesses

Additionally, these communities had to clearly demonstrate the potential for economic development, which essentially is the program’s main goal. The government considered several factors when gauging these communities’ potential for economic improvement. The main consideration was a community’s capacity to build public-private partnerships. These communities were also required to help provide the necessary private and public resources to help support the economic rejuvenation efforts.

The Application Process

Communities that met the set qualifications were required to apply with the federal government. One of the application requirements was backing by the communities’ local and state governments. This was required to ensure that qualifying requirements received as much support as they needed.

Another important requirement was the submission of a strategic development plan based on the EZ program. The plan had to include the input and insight of all involved parties, including community members, businesses, NGOs, and government institutions. Finally, the communities had to provide a baseline of benchmark goals and measurements to gauge the program’s progress and achievements.

Requirements & Incentives for Businesses

The federal government planned to spur economic growth in these communities by offering tax incentives to businesses who were willing to set up shop there. For starters, businesses were offered a 20% wage credit for the first $15,000 paid in wages to an employee – the employee had to be a resident of the empowerment zone.

In addition to residents of the empowerment zones, businesses also had the option of hiring target employees in exchange for a 40% tax credit on each of these employees’ first-year wages totalling $6,000. Target employees were considered some of the more vulnerable members of the community, including at-risk youth, vocational rehabilitation referrals, SSI recipients, and food stamps recipients.

Businesses that contributed to physical developments in these communities also stood to benefit greatly from subsidized capital expenditures. Under the program’s Round III stipulations, capital expenditure on equipment erected on land parcels within these communities would depreciate by up to $35,000.  

Outcomes of the Federal Empowerment Zones Program

Results of the EZ program were mixed and largely inconclusive. However, there were more positive outcomes than negative ones. For example, five of the six empowerment zones realized an increase in jobs and a boom in minority-owned businesses. However, the incentives were more attractive to large organizations than small businesses. It should also be noted that the program coincided with an economic boom across the country.

Several other programs have been modeled after the Federal Empowerment Zones program of 1993 with the same intention. It is up to the communities and businesses to keep track of these programs and take advantage of whatever they have to offer.

Contact us today to help you learn more about federal empowerment zones, and how your business could benefit from this program.

covid-19 small business tax credits

4 COVID-19 Tax Credits and Tax Relief Programs for Small Business Owners

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If you are like many business owners, then it is likely that the COVID-19 pandemic has impacted you financially in addition to fundamentally changing the way you do business. Fortunately, in an effort to make things easier on businesses that are being affected by this global pandemic, the federal government has passed several coronavirus relief packages that provide financial assistance to businesses and families across the country.

However, what some business owners may not know is that these stimulus packages have created new tax credits and tax relief programs meant to help small business owners during this difficult time. To help ensure that you are taking full advantage of these programs, here is a look at what businesses need to know about COVID-19 small business tax credits and relief programs. 

Employee Retention Tax Credit

In order to help businesses that were hurt financially by the coronavirus pandemic, The Employee Retention Tax Credit provides businesses with a refundable tax credit equal to 50% of wages paid to an eligible employee up to $10,00 per employee. This tax credit is available to all employers regardless of size or tax-exempt status. Qualifying employers can include those that are fully or partially suspended by government order due to COVID-19. Once an employer’s gross receipts go above 80% of a similar quarter in 2019, they no longer qualify for this tax credit.  

Payroll Tax Deferral Relief  

As part of the payroll tax deferral relief offered by the CARES Act, your business has the ability to defer the 6.2% employer portion of the Social Security tax owed on the first $137,700 of an employee’s 2020 wages paid during the deferral period (March 27, 2020 to December 31, 2020). You will then have to repay these deferred payroll taxes in two installments on December 31, 2021 and December 31, 2022. This deferral is available to all employers regardless of the extent to which their business has been affected by COVID-19. It is important to note that this deferral program is unavailable to small businesses, sole proprietors, or self-employed individuals who receive forgiveness of SBA loans issued under the Payment Protection Program that was offered by the CARES Act. 

Retroactive Tax Relief

The CARES Act also provided certain tax relief measures that were retroactive, which can potentially make it beneficial for you to file an amended tax return for past years in order to recover taxes paid. For instance, one provision of the CARES Act significantly liberalizes rules for deducting net operating losses by allowing net operating losses that arise from 2018 to 2020 to be carried back five years. A net operating loss that arises this year can then be carried back to 2015, allowing you to claim refunds for taxes paid in carry-back years. Since tax rates were higher before 2018, net operating losses carried back to those years can result in significant tax refunds, helping provide you with crucial capital during this difficult time.  

Sick/Medical Leave Tax Credit

As part of the Families First Coronavirus Response Act (FFCRA) signed into law in March, small businesses with fewer than 500 employees must provide limited paid leave benefits to employees affected by the coronavirus emergency. However, these small businesses have access to new tax credits to help pay for these benefits. The act requires that affected employers pay emergency sick leave of $511 per day for up to 10 days to employees in coronavirus quarantine or seeking a coronavirus diagnosis. An employee can also receive up to $200 per day for up to 10 days to care for a quarantined family member or a child whose school or child-care has been closed due to the pandemic. These required benefits are offset by a new tax credit that allows a small employer to collect 100% of qualified sick-leave and family-leave payments made by the employer as required by the law between April 1, 2020, and December 31, 2020. 

Taking advantage of all available tax credits and tax relief programs can be crucial in helping your business to survive the COVID-19 pandemic. You should consider talking to an advisor who can help you to ensure that you are not missing any key tax credits that could help your business during this difficult time. Contact us to learn about how Incentax’s process can help you find tax credits that could help your business through this ongoing crisis.