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r&d payroll tax credit

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

By | Startup | No Comments

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.

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.  

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.  

hiring startup

4 Essential Roles That Every Growing Startup Needs to Fill

By | Startup | No Comments

Your Growing Company

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

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

4 Essential Roles That You Need to Hire

1. Operations manager

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

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

2. Sales development coordinator

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

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

3. Tech support

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

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

4. Writer/ marketing professional

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

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

Tax Consultation with Incentax

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

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