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.

r&d payroll tax credit

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

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

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

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

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

Why the R&D Payroll Tax Credit?

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

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

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

Who Qualifies for the R&D Payroll Tax Credit?

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

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

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

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

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

1. Technical Uncertainty

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

2. Experimentation

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

3. Technological Tasks

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

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

Unlock the Power of Tax Credits

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

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

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

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

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

What is the WOTC?

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

How Does the WOTC Work?

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

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

How to Qualify for the WOTC

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

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

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

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

Filing for the Work Opportunity Tax Credit

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

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

Get in Touch with Incentax Tax Credit Experts

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

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

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4 Key Tax Credits for Small Business Owners

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

What Is a Tax Credit?

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

Earned Income Tax Credit

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

Work Opportunity Tax Credit

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

Credit for Small Employer Health Insurance Premiums

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

Research and Development Tax Credit

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

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

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How the Empowerment Zones Program Could Help Your Business

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

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

Qualification Requirements for Communities

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

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

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

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

The Application Process

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

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

Requirements & Incentives for Businesses

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

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

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

Outcomes of the Federal Empowerment Zones Program

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

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

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

covid-19 small business tax credits

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

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

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

Employee Retention Tax Credit

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

Payroll Tax Deferral Relief  

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

Retroactive Tax Relief

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

Sick/Medical Leave Tax Credit

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

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

federal empowerment zones

What Are Federal Empowerment Zones?

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Federal Empowerment Zones (EZs) are areas within the United States that are economically depressed. Communities that had poverty rates of at least 20% coupled with high rates of unemployment were designated EZs. In addition to high poverty and unemployment rates, the qualified communities also exhibited a high rate of emigration.

History of Federal Empowerment Zones

The Empowerment Zones and Enterprise Communities Act of 1993 made EZs possible. It made incentives available to businesses through the tax code. The act provided bonding authority for infrastructure development. Infrastructure improvements were seen as crucial to business growth and revitalization. A generous grant program was also provided, ensuring that distressed communities had the funding they needed to stimulate their economies.

Since the early 1990s, developments have been through legislation amending the original act. National competitions were held which allowed qualifying communities to compete with each other to gain designation as Empowerment Zones, Enterprise Zones (ECs), and Renewal Communities (RCs). All of these designations were designed to aid the economies of highly distressed communities.

Qualifying communities showed extremely high unemployment, poverty, and emigration rates. These same communities had to have regrowth potential. The aid meted out to EZs, ECs, and RCs indirectly benefited businesses through funds spent on infrastructure improvements. Businesses were eligible for employment tax credits of up to $3,000 per employee. These incentives encouraged business owners to hire within the Empowerment Zone because only wages paid to employees living and working within the zone qualified for the credit. 

Baltimore, a well known Enterprise Zone, also qualified for Empowerment Zone status. Unfortunately, several studies have shown that the results of the program were ineffective. Baltimore has a history of being a highly distressed city. It was not alone in its inability to experience growth. The EZ and EC Act of 1993 had little effect on the overall economies of the cities it was trying to help. The program instituted by Bill Clinton to help economically depressed areas did little more than bolster funding reserves for existing social programs.

Should EZs and ECs Continue?

With the current stormy economic climate, many more cities will experience highly distressing conditions. Unemployment for roughly half of the U.S. is at or above 11% as of the summer of 2020. Large national stimulus packages have been rolled out. The global economy is projected to experience an unprecedented blanket recession. Does targeted funding work? 

The previous studies conducted by government and independent agencies weren’t promising. This model for economic reform won’t meet the demands of a post-pandemic nation. The evidence for the efficacy of the EZ and EC Act of 1993 was inconclusive.

Does Your Business Qualify for EZ or EC Credit?

The original legislation of 1993 was extended by additional legislation into subsequent years. It is important for businesses to do their due diligence when it comes to tax filings. Many eligible business owners did not claim the tax credits associated with Empowerment and Enterprise community designations simply because they didn’t know about them. 

The original EZ and EC Act of 1993 was extended multiple times. The most recent extension allows employers to claim WOTC for employees that were hired within the zone prior to tax year 2020 and also live in the qualifying area. Wage credits can be claimed retroactively dating back two years.

Capital gains tax exclusion on business sales within the zones as well as other tax incentives and bond privileges were part of the Empowerment Zones and Enterprise Communities Act of 1993 and its subsequent extensions.  Many local businesses were unaware of these tax privileges and did not take advantage of them.  Contact us for help in filing for the tax credits you and your business are eligible for.

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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.  

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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!  

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3 Key Tax Credit Tips for Tech Companies

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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.