Aug 04
0
tax credits real estate

4 Ways Your Real Estate Company Can Save on Taxes

By | Real Estate, Tax Credits | No Comments

For independent real estate agents, it can be difficult to find the time to manage your finances. For many real estate agents who run their own agency, taking care of your clients, and developing new leads, can eat into your time. You may find tax preparation moving down your priority list. However, you do not want to make the mistake of being surprised when tax season rolls around.

Taking the time to look at your finances now can help you to make sure that everything is in order and that you are taking advantage of all possible tax deductions available to you when April arrives. Finding the right tax deductions can help save your business thousands of dollars each year. To help get you started, here is a look at just a few ways that your real estate company can save money on taxes this year:

Commissions Paid

There are several tax deductions that you can take as a real estate agent. An important one to keep in mind is that you can deduct commissions that you have paid to employees or business partners. As a business owner, paying commissions is a cost of doing business, and the IRS generally considers commissions paid to be a fully deductible business expense.

This is an important deduction to remember to take as it can represent significant money saved or a lot of money left on the table if you do not take advantage of this deduction. When you go to fill out your tax paperwork, deductions for commissions paid would be placed on your Schedule C tax form on the 10th expense line.  

Marketing Expenses

As a small business owner and sole proprietor, it is likely that you invest a significant amount of money in marketing and advertising your business. Even with the advent of cost-effective marketing methods such as creating social media accounts for your business, it is likely that you still spend a large amount of money marketing your business and listings by purchasing signs, flyers, and advertisements in local papers. Many real estate agents also outsource their social media and content marketing to experts, which is an added expense.

Fortunately, marketing and advertising costs can also be deducted as a business expense. Even money spent developing your website and running digital ads on social media and Google can be deducted as marketing expenses. These deductions can be made on Line 8 of your Schedule C tax form.  

Fees, Licenses, and Memberships

A common expense for independent real estate agents is annual fees for things such as license renewals, professional association memberships, and multiple listing service (MLS) dues. Fortunately, many of these fees can be deducted as a cost of doing business. Money paid towards premiums for general business insurance and errors and omissions insurance are also both fully deductible business expenses as well.

It is important to keep track of everything that you spend maintaining your business and professional memberships. This will help ensure that you take advantage of all tax deductions available to you.  

Deduct Travel Expenses

Of course, unless you are lucky enough to have only local clients within a few miles of your home or office, it is likely that you do a lot of driving, and the miles can add up fast. This can mean spending more money fueling and maintaining your car than the average driver. Fortunately, you can deduct $0.575 per mile you drive for your business in 2020. You may also be able to deduct maintenance and repair costs for your vehicle as well. 

Keeping track of all the tax deductions and credits available to you as an independent real estate agent can quickly become overwhelming, and it is easy to forget a credit or deduction. Contact us to learn how Incentax’s streamlined process can help you to identify and maximize all the tax credits available to your real estate company. This can help to significantly reduce your tax liability.  

Jul 28
0
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!  

Jul 21
0
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. 

Jul 14
0
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.  

Jul 07
0
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.  

Jun 30
0
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.

Jun 23
0
real estate cost segregation

3 Things You Should Know About Cost Segregation for Real Estate

By | Tax | No Comments

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

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

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

1. It is not for all properties 

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

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

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

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

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

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

2. The cost is not straightforward 

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

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

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

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

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

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

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

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

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

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

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

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

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

Jun 16
0
construction business tax credits

4 Tax Credits Your Home Construction Business May Be Eligible For

By | Tax Credits | No Comments

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

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

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

1. Work Opportunity Tax Credit

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

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

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

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

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

2. R&D Tax Credit

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

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

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

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

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

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

3. 45L Green Building Incentive

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

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

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

4. Disabled Access Credit

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

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

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

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

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

Jun 09
0
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.

Jun 02
0
stimulus bill tax credits

How Companies Can Take Advantage of the 2020 Stimulus Bill

By | Tax Credits | No Comments

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

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

Eligibility for the Economic Stimulus Package and Tax Relief

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

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

The Economic Stimulus Bill and Tax Relief

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

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

A Financial Shot in the Arm

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

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

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

Taking Advantage of the Stimulus Bill with Incentax

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

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

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