Category: Management

Tell Me Again How I Talk to My Clients About Tax Credits?

This keeps coming up, so let’s talk about it again!  CPAs frequently ask us about situations where they have never discussed tax credits with existing clients. This can be awkward, since your clients depend on your advice about all tax matters, business and personal. Sometimes we hear our clients ask us “why didn’t my CPA tell me about these tax credits?”Ouch.  So how should you handle this? Here are some ideas based on our discussions with CPAs and our clients:
  • Reach out to clients and let them know there are many incentives out there (the fall-on-your-sword approach). Tell them that these incentives can be complex and political, but you want to focus on assistance you can provide going forward. It may be better to tell your clients NOW and take the heat, rather than have one of your competitors tell them!
  • To start, send them an article about a tax credit they may be able to use.  Easy way — just click on the AlphaMail archive here, search, browse, select the article, and forward the page.

Sometimes the proactive approach won’t work.  In that case:

  • Wait until they bring it up (the let-sleeping-dogs-lie approach). Some clients may not want to be bothered with incentives or other tax details. But remember, these clients may hear about tax credits anyway from a competitor, at the country club, in a newspaper article, or even from their spouse! You need to be prepared to reply just in case.
  • Same as above — send them an articleEasy way — just click on the AlphaMail archive  here, search, browse, select the article, and forward the page.

Either way, don’t overlook tax credits! Discuss your clients’ business plans. Their qualifying activities can provide the tax credits that will strengthen your relationships.


Your New Tax Credit Team

Your brand new tax staff has the potential to find a gold mine for your clients if you train them to look for tax credit signals. In many firms, these new employees are the ones assigned to collect, compile and review tax data from clients. They then enter this data to the tax filing software. Perfect!  This process provides your firm with an ideal opportunity to uncover tax credit signals and opens the door for you to discuss these with your clients immediately. This is especially critical for long term existing clients that may feel ignored.

For example, a client’s tax data includes a $50,000 invoice for software. Your staff person enters this as depreciation expense in the asset group software and then goes on to the next item. This is a MAJOR signal for the Retraining Tax Credit. But due to pressure to stay billable and meet tax filing deadlines, the employee continues with the assigned task and doesn’t tell anyone, and an opportunity to help your client is overlooked.

Instead – have a quick 10 minute early morning training session with your team that receives and reviews client tax data. Use an example of an existing client that got a tax credit in a prior year (ex. Retraining), show the signal (ex. software depreciation expense was $50,000) and the resulting tax credit $$. Then have a contest, and the first one to find a tax credit “signal” wins a prize. Your clients will be glad you found their credit $$ and your new employees will feel like they are contributing to the firm and your clients. New eyes looking at existing clients are GREAT for client and employee retention, and in addition, you’ll get an effective new tax credit team!


Use Payroll Records to Find Tax Credits!

Believe it or not, your clients’ payroll systems contain key data to help you find them tax credits!  Whether they use an outside payroll provider or internal payroll software, it’s important to discuss this with them. For example, the Georgia Retraining Tax Credit and the Job Tax Credits in many states are dependent on details that can only be found in the payroll systems. Here are a few items to keep in mind regarding payroll systems and tax credits:

  • Employee Data – employee ID (not SSN), job title, pay rate, hire & termination date, state resident, location and Quarterly Georgia DOL-4 details.
  • Access to historical data – important for prior years and trend analysis.
  • Ability to download details to spreadsheets – Since each tax credit has its own unique requirements, it’s important to be able to analyze the data as needed.
  • Georgia payroll withholding taxes – Ask the outside payroll provider about their actual experience with utilizing tax credits against Georgia payroll withholding taxes (click here for the form and list of qualifying tax credits).

Many payroll companies offer sophisticated Human Resource Information Systems (HRIS) that provide additional features that may be beneficial. For example, monthly headcount by location and analysis of employee transfers versus new hires are critical when your client has multiple locations throughout Georgia. Some locations may be in special Opportunity Zone or Military Zone tax credit locations.

Helping your clients understand how payroll helps with tax credits strengthens your client relationships!



Out of State Owners and Tax Credits

You may have difficulty determining if a company can benefit from Georgia tax credits if it is a pass-though (such as LLC or S corporation) AND has equity owners that live outside of Georgia (non-residents). This can get complex quickly. Here are some areas to consider:

  • States with no personal income taxes (i.e., FL, TN, NV) – The equity owners may be able to benefit from Georgia tax credits.
  • States with personal income tax (such as AL) may provide no benefitsince AL taxes will increase if Georgia’s decrease as a result of tax credits (net benefit = zero).
  • Composite Return – If the company files a Georgia Composite Return, the company may be able to benefit from the tax credits (click here).
  • Mixed results– Some shareholders may benefit while others can’t. For example, most of the equity owners live in Florida and can use the tax credits, but the others live in Alabama and cannot benefit.
  • Operating Agreement – The agreement may stipulate specific distributions for income tax payments and tax credits to the equity owners.
  • Changes in equity ownership – new equity owners, buy-ins, transactions, recaps, and other related changes may impact this area.

You need to review this issue every year to look for changes in equity ownership, company tax structure, and each home state’s tax laws. You can also use this topic to start a great discussion with your prospective clients new to Georgia and/or with out of state owners.

So to summarize — Depending on the situation, your client and/or the equity owners may or may not benefit from Georgia tax credits – is this clear as mud?



Tax Credit Homework for Your Prospects

If you are like most CPA professionals, you find prospective clients from many sources. You may have been asked to bid on tax work by a company, or introduced to a prospect by a commercial banker, or talked with an existing client that has a tight connection to one of your target prospects.

What homework do you need to do before your initial meeting so you can leverage tax credits to help win the business? 

Tax credits are based on activities that the company has done or plans to do. There are many indicators of these activities (such as costs and hiring) that may signal tax credit opportunities (retraining employees or adding jobs, for example). As a CPA, you often have access to these indicators to help with the homework you need to do. Here are a few ideas:

  • Tax returns: This contains lots of information about tax credit activities that may qualify (i.e., IRS form 4562 Depreciation) and tax credits utilized in prior years. For example, review the state income tax returns, look for any Claimed Tax Credits and the Credit Type Code (for Georgia, click here for listing of codes).  Make sure to check the entity and shareholder individual returns.
  • Financial Statements: Balance Sheet, Income Statements and year-to-year comparisons contain a wealth of information and indicators of potential tax credits (such as consulting fees, payroll cost changes, operating leases, capitalized software and other items).
  • Physical Changes: Look at classifieds, job openings, moving announcements, LinkedIn, and the company’s website press releasesDrive by their site – any new construction, is the parking lot full?

So do your tax credit homework. Your preparation and situational knowledge will really help you win the business!



Bankers and Tax Credits

Your clients may be planning for business growth and expansion, and to make it happen, they may need bank financing. Guess what?  Much, or at least some of this financing will likely be used for activities that qualify for tax credits.

For example:

  • Line of Credit: increased payroll costs from adding employees = Job Tax Credits
  • Loan for computer systems: replacing or upgrading key business software = Retraining Tax Credit
  • Loan for capital: new or expanded land, facilities and equipment = Investment Tax Credit
  • Operating lease: new software, new or expanded buildings = Retraining and Investment Tax Credits
  • Other activities including R&D, energy, and others

As you work with clients on their year-end tax planning, ask about their expansion plans for the next few years and their means of financing it.  There is a good chance that their banking needs may provide hidden tax credits that really help them.

Talk with commercial bankers about their existing and prospective business clients. Discuss how you may be able to help strengthen their competitive advantage, using tax credits to help them close more business.

Educating bankers on tax credits for their clients will help you solidify referral relationships with them, ultimately bringing more new clients your way!



Single Factor Apportionment and Tax Credits

For companies that sell in multiple states, the amount of state income tax paid to each state is typically determined by applying an “apportionment factor” to its total net income, or some other measure depending on the state. Georgia has a Single Factor Gross Receipts Apportionment formula (click here) that is solely based on the sales factor (that is, sales within Georgia as a percentage of sales everywhere). In other words, a company’s Georgia income tax liability decreases as its percent of sales outside of Georgia increases. As this happens, the company’s ability to utilize Georgia income tax credits also decreases. A company may have a lot of tax credits due to its activities, but limited ability to utilize the tax credits. An exception may be when the company can utilizes the tax credits against Georgia payroll withholding taxes (click here for list).

Lately we are seeing manufacturers and distributors increasing their sales outside of Georgia. Initiatives such as e-commerce, Fulfillment By Amazon (click here) and other strategies are helping drive this. As you reach out to clients, make sure you discuss their sales plans outside of Georgia and the potential impact of Georgia tax credit utilization.



End of Tax Season and 2014 Client Followup

Congratulations on completing yet another Tax Season! After some well-deserved time off (hopefully), now is the time to re-engage your clients for 2014 tax planning. You can help your clients qualify for tax credits by reviewing:

  • Notes — From quick client discussions & emails during rush to complete 2013 tax returns. There were probably many last minute “oh by the way, I forgot to tell you…” client discussions.
  • Client files — Before you close out files, review year-to-year changes (such as, employee cost increases, capital asset changes, and consulting costs).
  • Customer Relationship Management system — Scan for updated client information that others in your firm may have entered to the firm’s CRM.

You may find a lot of activities that happened in 2013 or planned for 2014 that qualify for tax credits. Your clients will appreciate your proactive followup!


DIY Tax Credits?!

The Do It Yourself (DIY) phenomenon has really taken off for many professional services. For example, legal documents are available from “” and other websites. But believe it or not, many attorneys have told us that the legal forms websites have really helped their practices by providing plenty of billable hours to bail their clients outof the mess they got themselves into.

Some of your “DIY clients” may try to pursue tax credits on their own, not realizing what the consequences may be. They may need (well, probably willneed) your help afterwards. 

First, they spend their own time, resources and costs to complete the tax credit paperwork as best they can.  Then they ask the government to helpthem complete and submit.  Then they find out that the government can’t help due to its own fiduciary responsibility (for example, technical colleges can’t fill out Retraining Tax Credit applications because they are responsible for approving and certifying them).  Next, the client lobs it over to you!  And finally, you have a rescue opportunity.

So be proactive with your clients about tax credits before a bail-out is needed. Who knows, there may be a” website coming soon!



Year-End Tax (Credit) Planning

Now that the October 15 tax deadline is behind us, the fun begins withreaching out to your clients about year-end (2013) and next year (2014) tax planning. After you have finished your psychotherapy/Dr. Phil discussions, then you can get down to what matters – helping your clients minimize their taxes. And state tax credits can potentially be a big part of their strategies.

Commercial bankers are telling us that more and more companies are borrowing money to upgrade their business software. This may include Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Document Management Systems (DMS) and other company wide systems. The bankers say that many companies are accelerating adoption of e-Commerce, mobile apps and other new technologies.

With all of these changes, clients need your advice about alternatives best suited for them. After you have discussed deductions, accelerated depreciation, and upcoming 2014 tax changes, don’t forget training tax credits. If your client starts their implementation soon, they may be able to maximize their tax credits in 2013 AND 2014 (in Georgia it’s $1,250 per employee per year). PS – Don’t forget about your own firm for tax credits – you many have already done something that qualified & didn’t realize it!



Deferred Tax Assets & Credits

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!


ACA and Net After Tax Credit Savings

We have heard a lot of concern about the new ACA healthcare program (also known as the Affordable Care Act, Obamacare, and other names) that starts in 2014. Many companies are considering big employee changes, such as reducing headcount, moving employees to part-time basis, and leveraging staffing firms/independent contractors. But be careful — these changes could negatively impact your clients’ tax credits and their net after tax savings.

We recently attended the Georgia Chamber of Commerce’s conference on the new Federal Healthcare program (click here for upcoming sessions). Watch out for these state tax credit variables:

  • Number of employees – different programs for small groups (49 or fewer employees) and large groups (50 or more employees), based on Full Time Equivalent (FTE) employees.
  • Employee – employees that work 30 hours/week or more must be offered coverage.
  • Unknowns – lots of unknowns such as affiliated service group impact, common law employee clarification, and play-or-pay penalties.
  • Federal Small Business Health Care Tax Credits –  may be available (company has 24 or fewer full-time employees and less than $50,000 in average employee wages, click here )

The following Georgia tax credits may apply to your clients’ employees:

  • Retraining Tax Credit – Each employee must average 24 hours/week or more and can include regular and leased employees
  • Job Tax Credit (including Opportunity Zones, Less Developed Census Tracts and other) – Each employee must average 35 hours/week or more and can include regular and leased employees

Your clients may think they are saving $ by making these changes, but their net after tax credit savings may not justify the changes! For example, if employees are reduced to less than 30 hours/week, the Job Tax Credit can’t be utilized, since the total head count for employees (35 hours/week) goes below the Job Tax Credit head count minimum threshold. Pretty confusing! So get on top of this now, and reach out to your clients to discuss these issues.



Snail Mailing Amended Returns?

We have heard several issues related to snail mailing Georgia amended income tax returns to DOR, especially when tax credits have been added. Make sure you send it to the correct address (AND use a USPS CertifiedMail Receipt form).

Here are the mailing addresses:
Georgia Department of Revenue
Processing Center
Form 500X (individual):  
P.O. Box 740318
Atlanta, GA 30374-0318
Form 600 (C corporation):  
P.O. Box 740397
Atlanta, GA 30374-0397
Form 600S (S corporation):  
P.O. Box 740391
Atlanta, GA 30374-0391
Form 700 (partnership):  
P.O. Box 740315
Atlanta, GA 30374-0315
(Click here for details)
Good luck with tax season!


Do NOT Over-utilize Tax Credits!

Utilizing state tax credits against income taxes can be complex, especially for pass-throughs such as S corporations and partnerships.

Many state tax credits (such as Georgia’s Retraining Tax Credit, credit type code = 102) can be utilized up to 50% of the income tax liability per year and have a 10 year carry forward.

We have heard about tax software not correctly calculating the 50% utilization limit. For example, the CPA is not aware of the 50% limit, assumes the tax software is correct, and submits an amended return for a Retraining Tax Credit and $ refund for the client. DOR takes a long time to process the amended return and FINALLY replies that the amended return is not correct. You know the rest of the story!

If your clients are applying for tax credits, do not assume the tax software is correct. Double check the old fashioned way with a calculator — your clients’ refund checks will be appreciated sooner rather than later!


Amend or Extend for Tax Credits?

With the March 15 tax filing date approaching, you may be facing a dilemma for a pass-through entity, especially if your client wants to file shareholder individual returns by 4/15.  What if they plan to submit tax credits but may not have the tax credit documents completed on time?  Here are some options to consider:

  • Extend the state corporate income tax return (only need to extend state, not federal), then file individual returns on 4/15
  • File the state corporate income tax return by 3/15 without tax credits, then amend the state corporate return for tax credits applied, distribute amended K-1s, and file individual tax returns on time by 4/15

Tax planning with your client really pays off in keeping your clients happy!



Healthcare — Meaningful Use Gaps Left by EHR Software

Your physician practice clients may feel that they are on top of Meaningful Use due to their new EHR software. However, it is unfair for them to ask their EHR software to do everything for Meaningful Use. In fact, if they passed every measure reported by their certified EHR, they could still fail an audit and be required to give back the Meaningful Use $ they received.

For more details, I found a good article that highlights these potential gaps (click here).  

Continue reaching out to your healthcare clients, and see how you can help!