The number of tax credit Opportunity Zones has been increased by DCA (click here). It was announced recently that the City of Atlanta has been approved for some new zones.
This tax credit can get complex, since the local Opportunity Zone contact person, DCA, and DOR have to be in the loop for approval. If the tax credit is going to be utilized against payroll withholding taxes, another level of complexity is added. These tax credit $$ can really add up – but proceed with caution!
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).
The 2011 Job Tax Credit tier rankings have been published by the Department of Community Affairs / DCA (click here ).
If your client’s tier ranking or less developed census tract listing changed for the worse, make sure you submit the Notice Of Intent no later than February 15, 2011 (click here).
Going forward, remember to advise your clients who are adding jobs to be aware of the threshold levels so they add at least the minimum number of jobs to qualify for the credit.
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:
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!
There has been a lot of confusion about the changes made in the 2009 tax credit laws. One big item that many of you have asked about involves the “look back” changes affecting when you can amend prior year returns for Retraining (RTC) and Job (JTC) tax credits. The period was reduced from 3 years to one year.
The key driver is the activity and the tax year when it occurred.
The activity could be:
The tax year in which the activity occurred will determine how long the tax return can be amended for RTC and JTC purposes:
When things slow down after tax season and year-end tax planning begins, make sure you talk with your clients about 2009 RTC and JTC activities — before the tax credit $$ are gone!
As you review tax saving opportunities for your clients, you may not have much time to explore activities that qualify for state tax credits. On the surface, tax credits may appear to be too small $ and not worth your or your clients’ time and resources. In addition, the cost to amend the corporate and the equity owners’ personal tax returns may cause hesitation.
Sound familiar? Clients have told us that their CPAs throw out buzz words like “immaterial” and “onerous duty” as vague reasons not to pursue the tax credits.
It is funny how a recession can redefine words. When things were great a few years ago, the tax credits had to be BIG $ to be worth pursuing. Well, this recession seems to have significantly lowered the $ threshold and changed the meanings of “immaterial and “onerous duty”!!
Suggestion: Re-evaluate your clients’ situation and do a quick net-after-tax benefit analysis (after all other fees including fees for amending tax returns). If the hard $ benefit to each owner is a few $ thousand, it may be worth it. During these tough times, an “immaterial” event like a tax credit may keep your client happy!
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!
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