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r&d payroll tax credit

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

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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.

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.

technology company tax structure

3 Tips for Structuring Your New Technology Company

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“I wish I did that at the start.” It’s common to hear tech entrepreneurs uttering these words. They say this upon realizing that it’s difficult to either scale or downsize because they didn’t structure their businesses appropriately. In today’s corporate world, many new technology companies fade into oblivion as soon as they encounter their first tax or legal challenge. Those that manage to overcome these challenges face more significant challenges that even threaten their existence.

These challenges shouldn’t make your technology company a “lemonade stand.” Instead, you should use them to create a legacy of success and a long-lasting legacy. Restructuring your new technology company is the easiest way of countering most of the challenges that you will encounter. Here are three tips for restructuring your new technology company.

1. Establish a Family Trust

It’s common to see tech entrepreneurs holding their companies’ shares personally. As convenient as it is, this doesn’t allow you to split your income for taxation purposes. Likewise, it doesn’t protect your interest in the startup from any personal risk. Establishing a family trust acts as insurance for asset protection.

Often, tax returns and accounts for family trusts are only required when the trusts are receiving income by the sale of shares upon exit or via company dividends. Besides, establishing a family trust when you set up a tech company negates the need to face significant capital gains tax hurdles. Typically, such tax hurdles arise later on when you decide to move the company’s shares into a family trust.

2. Establish an Income Tax Partnership

When there are more than two businesses in a corporate group, tax consolidation is easy. The benefits of forming an income tax consolidation group with your subsidiaries or other companies include:

  • Intercompany transactions (including management and licensing fees) will be overlooked for tax purposes, thus lessening your tax burden
  • Tax obligations won’t arise when assets get transferred between the companies
  • The tax losses of one company will be offset against the profits of the other companies
  • The R&D tax incentive will be accessed at the group level. Therefore, it’s highly unlikely that eligible R&D tax expenditure will be missed.

The sooner you establish a tax consolidation group, the better. You’ll be able to access the aforementioned tax benefits as soon as possible, besides enjoying other numerous benefits of tax consolidation.

3. Set Up a Solo 401(k) for Your Company

A self-directed 401(k) is a unique retirement savings account that is only available to up and coming businesses. If you own or run a tech startup, you should take advantage of this account since it allows you to sock away up to $50,000 every year while qualifying for significant tax deductions.

Tax savings shouldn’t be your sole reason for setting up a solo 401(k) for your technology company. From a legal perspective, the money channeled to this account is secure since no one can touch it, including the IRS, bankruptcy, and those who may file lawsuits against your company.

What Are the Risks of Organizational Restructuring?

To effectively restructure your tech company and set it on the path of sustainable growth and profit, there are certain pitfalls that you should be aware of. These include:

  • Getting lost in the process
  • Establishing objectives and goals that don’t align with your company’s inherent goals
  • Confusion over team members’ roles after restructuring
  • Overcoming new tax hurdles that might emerge.

You can avoid these challenges by outsourcing the services of tax professionals at Incentax when restructuring your tech company. We use innovative data gathering tools to ensure that you get lucrative tax advantages as you restructure. If you are interested in maximizing your tax savings, contact us today.  

startup tax credits

The Use Of Tax Credits to Grow Your Startup Strategically

By | Startup, Tax Credits | No Comments

One of the greatest obstacles that startups face is the acquisition of enough capital to fund their business idea.  Financial management becomes an even more essential concept. Business ventures have various financial demands which can be a strain before the business gets to break even or become profitable. Therefore businesses have to minimize their costs and that includes taxes. For startups, how can a company use tax credits to grow their business strategically?

Startup Deductions

Did you know that you get to qualify for deductions in your first year of business? Whatever your startup costs, be it marketing or research, you are allowed a $5,000 deduction of organization costs and $5,000 of business costs if your startup total costs are $50,000 – $55,000.  However, if they are greater than $55,000, you do not qualify for these deductions.

Research and Development (R&D) Tax Credits

R&D tax credits are offered to enterprises involved in developing or designing prototypes and processes and products like software, or the improvement of the same to reduce their tax liability. These taxes are meant to encourage startups to invest in research and development. They can really help offset the expenses that startups incur in research and development.

This allows entrepreneurs to be less apprehensive about the risks of building their startup. Businesses with annual business receipts of less than $5,000,000 can claim a $250,000 credit for up to 5 years to offset against their FICA taxes. A business can choose to either claim the credit or offset against their social security taxes.

What are the requirements for claiming R&D tax credits?

You need business records to claim R&D tax credits. Companies must ensure that they document their research activities for them to make a claim. This means they have to indicate the expenses that were incurred in each activity.  It is also important to substantiate which employees were involved in the R&D activities through proper record keeping.

There are other strategies a company can use to ensure that they reduce their tax liability, including:

Retirement Contributions

Contribution to a retirement plan can earn you tax benefits. This includes personal contributions, and if you have employees IRA plans are ideal. There are also plans like SEP which allow you to make contributions on behalf of your employees discreetly.

Having a Home Office

If you are one of those who have started their business in a garage, did you know that having a home office can reduce your taxes? If you use your space as an office on a regular basis and it is exclusively for business you get to deduct $5 dollars per square foot of expenses for up to 300 square feet.

Business Registration

How have you registered your company? This is important because it will influence how you get to pay taxes. You get to save on taxes by registering your business as an S Corporation. Sole proprietors are the least taxed and C Corporations sometimes get to be double taxed.

Note: It is not advisable to lower your taxable income so that you do not get to pay taxes as it is counterproductive as you are trying to make profits. Instead, maximize your retirement income by getting an IRA savings plan for you and your employees.

Starting a business is not easy and it involves a lot of risks but that should not be a reason to give up on a good idea. With the right information, you can grow your business despite capital constraints. Contact us for consultation or for more information on how you can be tax-efficient and how you can strategically grow your business.

technology company tax burden

5 Ways Technology Companies Can Reduce Their Tax Burden

By | Innovation, Startup, Tax, Tax Credits | No Comments

Tax obligations are part and parcel of running a business. If your tech company is based in California, for instance, some of the taxes that you’ll have to pay include:

  • Income taxes
  • Employment taxes
  • Excise taxes

For years, tech companies have been slammed for failing to pay a fair share of taxes. However, it’s fallacious to make a blanket accusation to the effect that tech companies engage in tax evasion. Just like other businesses, these companies only devise ways of reducing their tax burden. 

From the local government to the IRS, tech executives should beware of all their tax obligations. This entails knowing how much tax you owe to different entities, when you should file, and the type of taxes that you ought to pay. Here are five strategies that a tech company can leverage to ease its tax burden.

1. Automating Tax Records

This sounds like a no-brainer, but some tech companies still take a casual and laidback approach to bookkeeping. Being proactive as far as bookkeeping is concerned could entail automating your records and books. Certain records are mandatory for you to take deductions. Without these records, expenditures might not be deductible. In this regard, here’s what you should consider doing:

  • Automate your books to track your company’s income and expenses. There are dozens of record-keeping programs that can help you do this.
  • Establish a file system to categorize your expenditure. Since some business expenditures are deductible, a system that categorizes your expenditure will help you determine and claim your tax relief.

2. Making Smart Tax Decisions

Under federal tax law, most business expenses are deductible. On the other hand, most income is taxable. Furthermore, the law also gives you options about when and to what extent you can report income or claim certain deductions. Being aware of these provisions can go a long way in helping you lessen your tax burden.

3. Staying Apprised of Law Changes

The American tax law constantly changes with significant legislation, IRS rulings, and court cases frequently emerging, thus altering the taxation landscape. Contrary to what you might think, these new developments are not meant to stifle your tech company. Instead, they present tax opportunities that you can leverage. Staying apprised with law changes can help you act on such opportunities.

For instance, in the aftermath of Hurricanes Wilma, Rita, and Katrina in 2005, several short-term tax breaks were enacted to benefit both individuals and corporations. By leveraging such opportunities when they arise, you’ll be able to lessen your tax burden significantly.

4. Contributing to Retirement Plans

Once your tech company breaks even, you should consider sheltering its income in a retirement plan that provides you with tax deductions for your contributions. The added benefit to this is that providing employees with such a savings opportunity helps you gain their loyalty. In the long-run, you’ll be able to tax on contributions until you start taking money from the retirement plan.

5. Structuring Your Business Appropriately

This is perhaps the most overlooked aspect of tax planning. Often, tech companies that start small fail to change their business structure as they scale. For instance, you can gain significant tax benefits by structuring your tech company as a C corporation rather than an S company or an LLC. When you structure your company as a C corporation, the initial $50,000 of its income will attract a 15% tax rather than a 35% tax.

The Incentax Advantage

Every business owner deserves a tax break. However, few of them know about opportunities that they can leverage to pay less tax. Moreover, you can avoid clashing with state and federal tax agencies by outsourcing the expertise of tax professionals. For top-notch tax consultation and advisory, contact us today.

hiring startup

4 Essential Roles That Every Growing Startup Needs to Fill

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Your Growing Company

With any new tech startup, certain roles are a given. Engineers are essential. They fabricate and create the company’s salable products, bringing the founding partners’ ideas to life. So are tech officers and finance officers who drive the company’s infrastructure and assets forward. Of course, behind them all is the company’s founder, the person with the initial vision.

In the drive to establish your business and get all the macro-level pieces in place, it’s easy to lose sight of some of the smaller, often overlooked roles that your company also really needs to fill.

4 Essential Roles That You Need to Hire

1. Operations manager

When a tech startup first begins doing business, many of the founding members may find themselves in multiple roles, wearing multiple hats all at once. The CEO, for example, might find themselves doing triple duty as the lead product designer, chief operations officer, and salesperson all at the same time. But once the company has taken its first steps and found its footing, it is essential to differentiate some of those roles to ensure continued success.

First and foremost, your startup needs an operation manager: someone to impose order on the chaos and make work flow efficiently. A good operations manager is responsible for structuring the company’s day-to-day operations and determining the processes that will be important for the business’s overall culture and prosperity. An operations manager can alleviate the burden that these duties impose on the company officers and help you set the tone for your business practices going forward.

2. Sales development coordinator

The CEO, and even a good CFO to some extent, may have a burning passion for their product or the solution that they provide. People who are driven by that kind of passion can’t wait to share their vision with the business world at large. One person, however, is not a sales force. For your business to grow and thrive, it is essential to introduce your product to as many new markets and potential customers as possible.

A CEO can’t be everywhere at once though. For the startup to grow past infancy, you need more than just part-time salespeople. You also need someone who can open up new channels and opportunities, and build meaningful relationships with potential customers. A sales development coordinator can carve out leads for your salespeople to utilize.

3. Tech support

So you’ve created an excellent piece of software and captured a large share of business from a niche market. Sales are rolling in and the company is really starting to take off. While you know that your product is of the highest quality, occasional problems are inevitable. In the early days, the operations manager, or even the CEO, would help customers troubleshoot their issues, but the volume of your business prohibits that kind of thing at this point.

It’s time to hire tech support to make sure that your customers are getting maximum value from your product. Ensuring happy, well-educated clients means an increase in future business for you. Don’t forget to include tech support, or some form of customer service, into your business operations.

4. Writer/ marketing professional

This might be the single most overlooked role in a new tech startup. You design software. You create hardware. What does writing have to do with your company?

A good, competent writer is essential to your marketing, which in turn is essential to your continued growth. You would not believe the amount of copy and verbiage that needs to be established when setting up a new company. A writer needs to be able to create SEO (search engine optimized) content for your company website to ensure that it is easily found in search results. Tech manuals, training manuals, corporate vision statements, social media marketing, and sales campaigns all need someone to write them, and that person has to be clear, persuasive, and adaptable to their audience.

Tax Consultation with Incentax

You and your tech startup have the right products and the right level of passion. You’ve assembled a great team and put the right players into the correct roles. Your business is growing rapidly and successfully.

Now is the time to work with tax professionals like Incentax to help you develop the best strategic tax plan possible to ensure the prosperity of your business going forward. Please contact us today to set up a consultation and begin planning a deeper financial strategy for your growing startup.