If the corporation receives a tax credit after the equity owners file their individual returns, an amended K-1 will need to be distributed and the equity owners will need to amend their individual tax returns. And that could cause some heartburn! So remember, be careful with amending tax returns with tax credits!
Category: Other Incentives
- Low Income Housing Credit (credit type code 109) – Used for financing the development of affordable rental housing for low-income households in Georgia
- Historic Rehabilitation Credit (credit type code 121) – Rehabilitation of a certified structure or historic home in Georgia
- Film Tax Credit (credit type code 122) – Produce films in Georgia. Starting July 1, 2017, there will be a new post-production film tax credit.
- Land Conservation Credit (credit type code 124) – Federal conservation easement for land in Georgia.
- Film Tax Credit for A Qualified Interactive Entertainment Production Company (credit type code 133) – Produce video games in Georgia
The “credit type code” listed will help with your tax planning analysis of prospective and existing clients. First, see if the client’s business can generate tax credits on their own (i.e., they retrained employees, added jobs, or invested in capital equipment). After you help them get those tax credits for their business, then fill in the remaining tax liability gap with the sellable Georgia tax credits. Good luck!
- For eFile, your tax software should provide the date. As an example, the software should provide the Federal (IRS) Form 9325 data (click here).
- For manual filing, make sure you send the return via USPS Domestic Return Receipt (green card or online track). Return Receipt saves the day when DOR has no record of receiving the tax return (this does happen!).
- For clients that want to review the tax return and manually file it themselves, request that they send the return to DOR via USPS Domestic Return Receipt (green card or online track) and send you a copy of the returned green card or tracking result.
- The Georgia Tax Center may provide the details needed (click here).
For tax credits that involve amending prior year returns, make sure that your team, the client and any third party tax credit providers know the “official” tax filing deadline date. Also be sure ask your client if they are working on any tax credits on their own. Your attention to these details will make sure that your clients beat that tax filing date buzzer!
- Location-based incentives: State and local tax credits are constantly changing. For example, Georgia’s Clayton County has been designated a Job Tax Credit Tier 1/Bottom 40 in 2017. This means ANY business can get job credits with an increase of only 2 jobs. As a result, many tax credit firms are aggressively contacting all businesses in the county and may be pushing YOUR CLIENTS to sign their agreements now.
- R&D tax credit: federal and state R&D tax credit changes may now benefit your clients. Previous limitations due to AMT and income tax liability may no longer apply (click here ). All of a sudden, your clients are being blasted by the numerous tax credit firms that specialize in R&D credits.
- Industry vertical: Your clients may have heard about special incentives at industry events they attended. For example, your general contractor client may have heard that their new design and build services may qualify for the Section 179 D and other incentives.
How can you control who is knocking on your client’s door? It may be difficult, but giving them a “heads up” via your website, newsletters, and other sources will help. Be sure to emphasize how important it is for BOTH of you to track and monitor their tax credits.
So remember, be proactive with your clients before they hear those knocks on their doors! You will have happier clients and won’t get the dreaded “why didn’t you tell me about this?” questions after it’s too late!
- Trusted business advisor – By looking at your client’s entire business, including their business and equity owners’ tax structure, you can provide guidance and strategy to help your clients this year and in the future. Tax credits can be an important part of this discussion.
- Expanding your services and offerings – You can become the “go to” person for any and all incentives that may apply to current and prospective clients. This resource (including 3rd party incentive providers) will provide massive differentiation to your firm.
- Higher billing rates – Moving from “tax filer” to business advisor allows you to provide more value and charge higher $ billing rates.
- Assets purchased (i.e., land, buildings and equipment): Georgia Investment Tax Credit, cost segregation study, Section 179, federal and state energy incentives, Georgia sales tax exemption for supplies/energy, and other incentives
- New employees hired: Georgia Job Tax Credit and Federal Work Opportunity Tax Credit.
- Existing employees trained: Georgia Retraining Tax Credit.
- If this move includes a major expansion or new location: other state and local incentives may be available.
- Other incentives: Some locations have non-tax related incentives such as the Tennessee Valley Authority for electric power cost reduction for employee head count increases (click here).
So remember — if your client is utilizing a tax credit, ask more questions to flesh out the details of the activities related to the tax credit. And these activities can lead to more incentives today and tomorrow.
Well, yes there are ways to avoid the “it depends, I don’t know, let me get back to you, blah, blah” and keep them interested enough to say “tell me more.”
- Retraining tax credits: $1,000/employee, so 100 employees = $100,000 tax credit
- Job tax credit: $1,000/new job, so 25 new jobs = $25,000 tax credit
- Investment tax credits: $1 tax credit/$1,000 new fixed assets, so $10,000,000 new manufacturing plant = $100,000 tax credit
- Backwards – Work backwards from your client’s Georgia income tax liability. If they have $50,000 in liability, they can utilize 50% with the Retraining Tax Credit (or $25,000). For example, if they have 25 or more employees and installed a new business-wide system, you may have an opportunity to help them with this $25,000 retraining tax credit.
- Forwards – Work forwards from the prospect’s planned expansion. If your manufacturing prospect mentioned that they are planning a $5,000,000 plant expansion, they may benefit with your assistance with this $50,000 investment tax credit (along with a cost segregation study and other services you can provide).
A word of caution: don’t forget to temper initial enthusiasm with disclosures of “it depends, subject to, upon approval, ifs, ands and buts…”
And remember — keeping your clients and prospects interested and getting them to ask for more information are great ways to start and build your relationships!
- Money back to re-invest – The savings your clients realize from tax credits can be re-invested in their businesses. Where else can they get a better return on investment?
- Reduced fees – By evaluating tax credit potential early, you may be able to reduce your total time and fees to the client (such as amending corporate and equity owners’ tax returns). On top of that, advanced planning helps you avoid missed tax credit opportunities, since many state tax credits require applying before the tax credit activity starts (such as adding jobs in Tennessee).
- Reduced risks – You can reduce the risk of your clients’ leaving by adding tax credits to your offerings. In addition, bringing in outside providers to be a part of your “full service” offering can quickly add to your competitive advantage.
- Strengthen your firm’s knowledge base – Each time a client utilizes a tax credit, your firm’s knowledge base grows. You will increase your understanding of the tax credit’s qualifying activities, potential $$, and resource requirements.
- Start now – Find an “Early Adopter” client and walk through the steps together. Tap into these clients to explore, learn and keep up with tax credits, and remember to start sooner rather than later.
So remember — tax credits benefit your clients AND your practice. If your clients say they want to investigate tax credit potential, or even if they don’t — you need to get proactive and research tax databases, talk with outside providers, and tap other resources that can help get you started now!
- Out of pocket – You and your staff’s non-billable time and expenses to investigate, analyze and present ideas to your client.
- Fees – What will this costs your client for your services and other providers’ fees?
- Opportunity costs – The alternative to tax credits is that your client doesn’t utilize the tax credit and pays the income taxes.
- Risks – If you don’t bring this up to your client, is it worth the risk of them asking why you didn’t mention tax credits to them, or someone else telling them?
- Learning curve – Your time, effort and resources required to get up to speed. If this is a strategic client, a competitive situation or vertical market that you are pursuing (for example, distribution), it may be worth the investment. Where can you go to quickly determine if the tax credit can benefit your client?
- Keeping up – What is your cost to stay abreast of tax credits? This may include keeping up with legislative issues, regulatory changes, expiration/sunset of the tax credits and other issues. Are there resources to help with this effort?
There could also be other costs associated with tax credits. These costs can be short term (such as non-billable hours) or long term (for example, client moving to a different CPA firm). So remember — regardless of the costs — reach out to your clients and find their tax credits!
Missouri Works Training — provide funding assistance when companies need to upgrade worker skills due to:
- New products or processes.
- New Technologies.
- Competition driving quality or productivity improvement.
- Relocation or expansion.
Other Incentives — Emphasis on industrial bond and other financing programs.
- Slightly higher corporate and same personal income tax rates.
- Higher combined state and local tax burden
- A far narrower range of incentives.
- Pre-approval required for all incentives
There are two sides of the tax credit coin — costs and benefits:
- Costs -It may take your time (maybe non-billable?) and your client’s time to uncover the potential benefits.
- Benefits – If you take that time to find out, your clients will save $$ in taxes, you will be viewed as a better trusted advisor, and your client’s relationship with you (“stickiness”) will be strengthened.
Of course, make sure your clients can benefit from tax credits before you start the process! Having reliable resources for each tax credit opportunity will help. And then it won’t be so easy to give up on tax credits — for you or your clients!
- Research and Development Tax Credits — new products or new processes
- Work Opportunity Tax Credits (WOTC) — hire new employees that have specific backgrounds
- Section 179-D Deductions — energy incentives for buildings
- Cost Segregation Studies — reclassify building costs of new construction
State (Georgia Example)
- Research and Development Tax Credits — new products or new processes
- Retraining Tax Credits — train existing employees
- Job Tax Credits — new job additions
- Investment Tax Credits — new land, buildings, and equipment
If your clients are paying income taxes, remember to review their current and planned activities to find their “below the line” tax incentives — they will thank you for helping them save money!
- Tax credits & withholding taxes – Instead of using tax credits against income taxes, some tax credits can be utilized against Georgia payroll withholding taxes. This includes the R&D credit, clean energy and some of the job tax credits (click here for details).
- Real and personal property tax – Review accumulated depreciation schedules and business personal property tax returns for items no longer owned by the company. Also review for potential business inventory and freeport exemptions (click here for details).
- Sales and use tax – Are all of the sales tax exemption certificates on file? What about sales tax exemptions for energy used in manufacturing? (click here for details).
- Georgia Enterprise Zone – Is the company moving to or expanding in a designed Georgia Enterprise Zone? This incentive may include local property tax exemptions and reductions in occupation taxes, regulatory fees, or local fees (click here for details).
So get started helping your clients find their “above the line” tax incentives — they will thank you for helping them save money AND increase EBITDA!
Enterprise Zones – In exchange for investing and hiring in an enterprise zone, businesses receive exemption from local property taxes on new plant and equipment for at least three years (but up to five years) in the standard program. In addition, many zones can offer special incentives for investments in qualifying rural facilities or in electronic commerce operations.
Strategic Investment Program – The Strategic Investment Program exempts a portion of very large capital investments from property taxes for 15 years. The program is available statewide.
Construction-in-Process – Unfinished facility improvements may be exempt from local property taxes for up to two years while under construction.
Food Processing Machinery and Equipment (M&E) – For five years after it is newly placed in service, qualified M&E is exempt from property taxes if certified by the Oregon Department of Agriculture.
Electronic Commerce – Investment tax credit equals 25% of the cost incurred by an authorized business for capital assets used in electronic-commerce operations inside one of several enterprise zones.
Qualified Research Activities Credits – Corporate credit for qualified research and basic research conducted each year in Oregon, as a state-level extension to the federal program.
Oregon Investment Advantage – This program helps businesses start or locate new types of operations in a number of Oregon counties by providing an income tax subtraction, potentially eliminating state income tax liabilityon the operations for several years after they begin.
Oregon Business Expansion Program – This is a cash-based forgivable loanequivalent to the estimated increase in personal income tax revenue from new hiring.
Small Manufacturing Business Expansion Program – This is a cash-based forgivable loan for small manufacturing businesses’ expansion projects.
Film & Video Incentives – Rebate on 20% of the production’s Oregon-based goods and services. Additional cash payment of up to 16.2% of wages paid to production personnel. Unlike other states’ programs, these incentives are cash-based as opposed to tax credits. This simplifies and speeds up the process.
But before the tax return is finalized, don’t forget to check for potential tax credits. Since tax credits are based on your client’s activities, it may not be immediately apparent, but their tax data could contain key indicators of tax credit qualifying activities.
- Salaries and wages
- Rents and operating leases
- Depreciation, Section 179 deductions & bonus depreciation
- Other deductions such as computer expenses, professional services, consulting, and outside services
- “Other costs”
Your tax software’s reporting and business analytics capabilities may be able to assist with your analysis of current year and prior years. For example, look at a 4-year trend of Section 179 items (such as equipment or software). Any slow steady growth, large blips or increases, or unusual trends? A year-to-year increase of 20% or more may be worth drilling down into the details for further review. If you find something, talk with your client and ask a few questions! What about that employee training (Retraining Tax Credit or training grant program)? Was that large purchase used for manufacturing (Investment tax credits)?
Your client will thank you for recognizing their patterns — and for not being just another “tax return filer” outfit.
Economic Development for a Growing Economy Tax Credit (EDGE):
Skills Enhancement Fund (SEF):
Hoosier Business Investment Tax Credit (HBI):
Headquarters Relocation Tax Credit (HRTC):
Industrial Recovery Tax Credit:
Research & Development Incentives:
- Slightly higher corporate but far lower personal income tax rates.
- Higher combined state and local tax burden
- A narrower range of incentives.
- Pre-approval required for all incentives