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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 mistakes new business

5 Common Tax Mistakes Businesses Make

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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.  

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

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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. 

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.

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.