With the economy recovering in some areas, companies are starting to re-invest in their operations. These investments (such as software upgrades and head count increases) may qualify for state tax credits. Unfortunately, some companies may not have the income tax liability capacities for these tax credits in the near term. But in many cases, state tax credits earned can be carried forward (up to 10 years) and may show up as Deferred Tax Assets on the balance sheet.
Depending on a company’s tax structure, there may be benefits to these carried forward tax credits:
- C Corporation: the tax credits will increase the company’s assets on the balance sheet. This will be beneficial to investors and bankers that consider assets for valuation purposes. In addition, acquiring companies may be able to leverage these tax credits in the future.
- Pass-through (such as S Corporation , LLC, LLP, and others): individual equity participants could benefit from personal “deferred tax assets” that could be utilized to off-set future income tax liabilities (i.e., spouse income increases, their business is sold, and other items). Include this in discussions with the client’s wealth management team.
So remember to reach out to your clients to discuss their company and personal asset planning. A deferred tax credit today may cover a tax liability tomorrow!
This Tax season is getting started with the annual goat rodeo of collecting and reviewing client data. You have probably already mailed, emailed, called, and reminded your clients that “it’s that time again.” Well, so that you won’t sound like a dentist (as in, “this won’t hurt too much”), make this a more cheerful experience by asking your clients about their activities that may qualify for tax credits (click here for the Alpharesults Tax Credit Summary).
Now that tax season is here, the fun begins. Clients are probably dumping their tax documents (electronically and physically) at your office and asking when their tax returns will be completed. As you dig through all of the details, you discover some changes the client forgot to mention that will impact their taxes.
We had a similar situation recently. The client’s tax structure changed – they converted from a C corporation to an ESOP (100% S corporation), so they no longer pay income taxes. The client didn’t tell us about this change. Meanwhile, the client spent time and resources to collect their state tax credit documentation. As usual, we helped them get the tax credit certification and delivered it to their CPA. The CPA didn’t know what was going on since he had already talked with the client about the change. The client forgot that paying no taxes meant that they could not use tax credits.
If your clients have utilized tax credits in the past, you need to help them understand (and beg for no surprises!) their potential to utilize the tax credits in the future. Major changes in tax (such as tax structure, future NOLs, equity ownership and other items) can have a major impact on the ability to use tax credits (and save your client time and resources).
An unfortunate part of business success is having an income tax liability. And despite your best efforts of tax planning and advice, your clients may still have to pay taxes. But that’s good, because tax liability is an indication of revenues, profits and business success, right?
We heard an interesting story about a a highly successful multi-million dollar a year business owned by a man with an eighth grade education. One of our friends heard him say, “I just love to pay taxes.”
The business owner went on to explain that he was perfectly happy to pay his obligations, because he knew he had already done everything he could legally and morally to keep his tax payments to a minimum.
Got any clients like that? Maybe not very many, but your year-end and 2011 tax planning is a great time to discuss opportunities to reduce taxes with all of your clients.
Some ideas to explore with your clients include:
- New software or business process changes – Retraining Tax Credit
- Adding employees – Georgia and Federal job tax credits
- Adding land, buildings, or equipment – Investment Tax Credit, cost segregation study, and energy incentives
- Business or product changes – Georgia and Federal research tax credits
- Large Georgia income tax liability – Georgia Film and Low Income Housing tax credits
Get your clients talking about their business (including prior years and plans for the future). There may be hidden gems of potential tax $$ savings that you can uncover for your clients!
We got great feedback from last month’s article about “Why didn’t my CPA tell me about tax credits” (click here). You sent us comments and concerns about engagement letters, law suits, being too busy and not knowing what to look for.
How can you find out if they can utilize tax credits? With tens or hundreds of corporate clients, you have a hard time keeping up with them all. Bottom line: most of the Georgia tax credits are for companies that are investing in themselves. This includes adding jobs, expanding, moving, implementing new software, and many other activities. One way or another, all of these investments show up on the accounting and tax related documents that your client provides to you.
Some CPA firms have incorporated data mining IT tools to analyze these documents (such as flagging any clients whose capital assets increased more than $100,000 year-to-year). Others visit their clients on site to pick up these documents and spend time talking with their clients about their business. Still others rely on “opt in” check boxes in their client communications — not very effective if the client doesn’t already understand tax credit opportunities!
We are hearing more and more recently that clients are shopping all of their professional service providers – including CPA services. Make sure your clients know about your value by letting them know that you are doing more that just keeping them compliant – you are trying to help them save money with tax credits!
Based on all the headline news and banners, I thought I was at a tax credit show.
Last weekend, my wife & I went to a big home improvement show. As we entered the exhibit area, it seemed like every booth had something about tax credits. Air conditioners, windows, insulation – you name it and you would hear something about tax credits.
I asked a painting contractor about tax credits. He replied that there must be one somewhere since everyone else has one available!
From what I saw, the energy tax credit $$ are small and may not be not worth the time and effort.
With tax season going strong, I am sure you are hearing some unusual questions about energy tax credits. Caution your clients that these credits may sound great, but not much $$ after all the effort.