tech company research and development

Does Your Business Qualify for R&D Tax Credits?

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

The topic of Research and Development (R&D) is often associated with images of scientists gathered around a table to discuss complex formulas and space-age discoveries. But did you know that if your company’s staff employs personnel such as software developers, engineers, and machinists, your R&D expenses could qualify for tax credits

Many companies fail to take advantage of this tax credit, unaware that they have qualifying R&D expenses that are approved by the IRS. These do not have to be pioneering inventions or innovative undertakings. Rather, this credit is available to companies that create or improve products and trade processes.  

IRS Criteria for R&D Credits

The federal R&D tax statute provides a credit of up to 10% of qualifying expenses. However, many states also have this credit which can bring the total percentage to as high as 20%. Rules for determining what qualifies as R&D expenses are listed under Internal Revenue Service Code section 41. 

The IRS has a predefined set of criteria that determines what activities satisfy the requirements of qualifying R&D expenses. These are as follows:

  • The activity must have a purpose such as improvements in function, performance, reliability, or quality. Projects related to the appearance of a product do not qualify. 

  • Technical uncertainty related to the capability, methodology, or design of the business. The uncertainty must be attempted to be resolved with experimentation. This does not include any economic uncertainties.
     
  • The project must rely on hard science such as engineering, physical/biological sciences, or computer science. 

Once all the above criteria are met, then related expenses in wages, supplies, and contract research that were incurred during the project can be considered qualified R&D expenses. 

Technology R&D Expenses

According to Accounting Today, here are some of the most commonly overlooked technology expenses that can qualify as R&D expenses: 

  1. Cloud-Computing Costs
    Many companies have harnessed the power of cloud computing which provides an efficient way of storing, processing, and analyzing data. The server, platform, and Software as a Service (SaaS) technology costs included in cloud computing may fall under qualified research expenses (QREs) for both federal and state R&D credits. Development platforms and beta-testing of software are also included in this classification.  

  2. Migration Of System Platforms 
    The complex project of migrating systems to the cloud often involves technical uncertainty and failure, qualifying it as an R&D expense. 

  3. Replacement Of Obsolete Parts
    Should a part from a product become obsolete, redesigning and testing are necessary for a replacement. This process involves technical uncertainty and failures which can be considered R&D expenses. Expenses can include wages of engineers and other associates involved in the redesigning process so long as their contributions are clearly demonstrated. 

  4. Automation Expenses
    Technology that is developed to improve the efficiency of the manufacturing process is considered a QRE. Robotic components are a good example of this as uncertainty exists as to where to place them and what they will do. The cost of the robot itself cannot be included, but the research into where and how they will fit into the process as well as the testing are qualified expenses. 

  5. Artificial Intelligence and Machine Learning
    Artificial intelligence and machine learning are used to improve manufacturing efficiencies. As a result, the research expenses involved in these aspects would also qualify as QREs. 

Other Industries Eligible For R&D Credits

There are many other industries and applications where qualifying R&D expenses can be claimed. The CPA Journal lists several of these in various areas.

Restaurants, for example, may have qualifying expenses such as ways to improve nutrition, safety, and preservation of food. The construction industry involves designing new heating and air conditioning systems as well as new construction techniques. Agriculture involves researching and designing new irrigation systems, harvesting improvements, and new feeding techniques for livestock.

Many taxpaying companies can benefit tremendously from the R&D tax credit. However, millions of dollars go unclaimed yearly since businesses fail to recognize exactly what qualifies for this credit. 

Incentax can help identify and maximize qualifying R&D expenses for your business. Contact us for more information on how you can take advantage of these tax credits.  

sb 1447 hiring employees covid

What California Business Owners Should Know About SB 1447

By | Tax, Tax Credits, Uncategorized | No Comments

Those of you with a business in California know all too well about COVID-19 wreaking havoc on keeping things afloat. There’s good news, though: if you still have not experienced a turnaround in your business due to the virus, some tax credits are now available to help you.

One bill passed in California this fall is SB 1447, or a $100 million hiring tax credit for small businesses. A lot of business owners are already taking advantage of this to help them get back on track, including those who had to let employees go.

What do you need to know about this new tax credit? Take a look at the details and how to use it to your advantage to avoid further crisis.

SB 1447 Explained

SB 1447 is defined as a small business hiring credit to give tax credits if employers hire more employees throughout 2020. It applies to the tax year beginning this year and going through January 1, 2021.

For businesses like yours, it helps save you exponential money if you need more employees to keep your business operating optimally. You might have held off hiring more employees since spring out of fear of the future tax burdens.

Three California Democrats put this bill in motion: Sen. Steven Bradford, Sen. Anna Caballero, and Assemblymember Sabrina Cervantes. It was just one part of California’s recent laws put in place to help the business community bounce back after COVID-19 hardships.

These legislators noted a sobering fact before getting the bill passed: Small businesses suffered a 21.5% loss of jobs earlier in the year. This new bill brings major relief, even if you need to know a few more things to qualify.

Are You a Qualified Small Business Owner?

To qualify for this tax break, you need to fall under two guidelines:

  • You’ve employed fewer than 100 employees since December 31, 2019.
  • You had a 50% reduction in gross receipts between April 1, 2020 and June 30, 2020.

Keep in mind the credit is capped at $100,000 per qualified small business owner. When you hire new people, the new employees need to be paid qualified wages and not paid through the Personal Income Tax law or the Corporation Tax law.

These provisions are just the basics. Calculating your tax credits has specific rules you need to look at more carefully. One thing to note is any new hires working full-time can not work for you more than 167 hours per month.

Calculating Your Tax Breaks

To figure the tax break you get back, know you receive $1,000 for each net increase in qualified employees. You have to compare your average number of employees for the 2nd quarter of this year with the average number you had between July 1 and November 30.

Another great thing to consider with this new bill: You can apply your credit against qualified sales and use taxes. If you are a retailer, this is a major benefit when you have a lot of other tax burdens annually.

The aggregate amount of credit available will also have a cap at $100 million, if covering the majority of California’s hurting small businesses.

What will the tax benefits really be, though? Will it lead to a brighter future for California’s small businesses? On a national scale, many small businesses likely wish for the same.

Bringing New Lifeblood to the Small Business Community

When California Governor Gavin Newsom signed the bill back in September, he said: “This is really about the lifeblood of California’s economy, it’s about a sense of pride and spirit that we all have. This is about the California dream.”

Now available as a tax credit for the next five years, you can bring your business back from the brink. This tax bill joins an exclusion of federal Paycheck Protection Program loans from gross income tax filings, giving Californian businesses further breaks.

Contact us at Incentax LLC so we can help educate you on the many tax breaks available to businesses today.

net operating losses farmer concept

What You Need to Know About Net Operating Losses (NOLs)

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Net operating losses (NOLs) are not always detrimental to your business. The government has created ways for businesses to offset these losses. There are flexible options available for carrying tax assets forward into future tax years, or back depending on your businesses current cash flow needs.

NOLs Explained

Net operating losses are realized when businesses are expensing more than they take in. According to the IRS, “If your deductions for the year are more than your income for the year, you may have a net operating loss.” This is particularly relevant to businesses with annual incomes that were affected by the recent novel coronavirus restrictions. 

Net operating losses in a farm context are easily visualized. A farmer who has a crop failure in his first of three years in the farming industry will have incurred a net operating loss. This loss will be counted as an asset against the hoped-for income of the next year. This asset is carried forward to the second year and applied to that year’s income. The deduction of up to 80% of the previous year’s loss is then applied in farming year 2.

Carrying forward the loss works in the farmer’s favor if farming year 2 is a bumper crop. His high income of the second year is tempered by the deduction of year 1’s loss, thus reducing his taxable income accordingly and saving him money spent in income tax. The remaining 20% of the NOL can be applied to farming year 3’s bumper crop reducing that year’s taxable income slightly. Losses incurred would be counted and discounted against future farming years until the losses were accounted for.

The disadvantages of being allowed to carry forward a loss rather than carryback are two-fold. First, if the loss is carried backward it can be applied to a previous tax year that had a higher rate and it could provide the company with a tax refund. Second, because of the time value of money, it is better to have cash now rather than in the future.

The TCJA (Tax Cuts and Jobs Act) caused a lot of changes to occur with regard to taxation in 2017. One of the changes made was a disallowance of carryback for excessive losses. This affected most taxpayers carrying large losses disadvantageously.

A two-year carryback period had been an option previously, but was no longer viable from 2018. Farmers were allowed a carryback period of up to 5 years. The option for most taxpayers carrying a large loss was for them to carry forward the loss indefinitely. The recent CARES (Coronavirus Aid, Relief, and Economic Security) Act made changes to the implementation of some aspects of the TCJA in regard to NOLs.

NOLs and the CARES Act

The CARES Act put a temporary suspension on the implementation of TCJA section 172 by allowing to carryback losses to 5 years. This effectively puts a hold on the elimination of the two-year carryback limitation present in the TCJA. The CARES Act makes it possible for businesses to carryback losses incurred in tax years 2018 through 2020. 

It is important for businesses to have proper documentation of NOLs. This is then disclosed in notes with the financial statements of the company when income taxes are filed. Between the changes that the TCJA made to the Internal Revenue Code (IRC) and the amendments that the CARES Act made to the TCJA, this year will be a doozy for business owners and their tax advisors. Tax strategies are available to take advantage of NOLs. Contact us to find out how your NOL can be a boon instead of a burden to your business this year.

tech research

3 Ways to Fund Your Tech Company’s Research Activities

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Research plays a vital role in the evolution and success of tech companies because it promotes sustainability. As such, your tech company’s research can give it a competitive edge in the market by helping you develop plans that spearhead innovations. That implies that creating solutions for future problems that you can predict becomes a possibility through research.

So, if you want to speed up the growth and evolution of your tech company by introducing innovations and breakthrough products in the market, investing in research activities for your tech firm is critical. It is a fact that tech entities grapple with the highest expenses for research, and the cost can amount to billions of dollars for large organizations.

On the other hand, research expenses can be minimal for small tech businesses, yet they are still vital for the success of such establishments. The competitive nature of the tech marketplace is one of the reasons why it is difficult for individuals to finance research initiatives. Here are some of the funding options you can consider for your tech company’s research activities.

Approach Angel Investors

One of the reasons why you should consider seeking funding for your tech firm’s research initiative from angel investors is that these individuals have a high net worth, and their annual income is also huge. Most angel investors are open to new ideas. They typically operate alone, but may also join with others to form a fund.

Before approaching an angel investor, you must put together a solid business plan and a great pitch. Capturing the attention of an angel investor with enthusiasm and promising data points about the current situation and future potential of your tech business is what will help you secure the funds you need for your research activities.

Angel investors fund your company in exchange for a return on investment. You also need to ensure that your finances are in order and that your management team is competent. The reason is that these are some of the factors which determine whether an angel investor will invest in your tech operations or not.

Additionally, the personality of the angel investor you choose should be in sync with yours. That way, the two of you will get along for the benefit of the initiative you need to finance. Giving an angel investor as much information as possible allows them to make an informed decision regarding investing in your research operations.

Consider Crowdfunding

Online crowdfunding sites help individuals finance inventions, businesses, and projects. They make this possible by bringing various people together who are ready to cooperate and support organizations or entrepreneurs to attain a particular goal. In that case, you need to research such sites to understand the projects they finance.

When seeking funds from crowdfunding websites to finance your research, you need to consider publicizing your initiative to friends and family. The support you get from such persons can spur other people to contribute to your cause. You also need to assess traffic, payment methods, social networking provisions, and fees before opting for a particular crowdfunding site.

Seek Assistance from The Government

The federal government can step in and fund your tech company’s research initiative depending on the nature of your invention. For example, if your research project focuses on a positive impact on the environment or saving energy, you can approach the Department of Energy for funding. Remember to research the requirements of the program you are pursuing to gain insight into the guidelines that government agencies have put in place.

Accessing federal funding for your tech company’s research activities implies that you will be in a position to compete favorably with large firms.

Winning the confidence of the investors or the agency you are seeking funding from is paramount if you do not want your project to stall. If you need more information on ways to fund your tech company’s research activities, contact us today.

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

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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

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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.