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Small business tax credits

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 credits

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.

small business tax credits

4 Key Tax Credits for Small Business Owners

By | Tax Credits | No Comments

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.

business tax credit

How the Empowerment Zones Program Could Help Your Business

By | Tax Credits, Tax Incentives | No Comments

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.  

construction business tax credits

4 Tax Credits Your Home Construction Business May Be Eligible For

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

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

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

1. Work Opportunity Tax Credit

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

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

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

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

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

2. R&D Tax Credit

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

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

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

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

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

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

3. 45L Green Building Incentive

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

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

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

4. Disabled Access Credit

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

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

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

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

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