Here is the rule for 2009, 2010 and 2011: your clients can only amend up to one year after the return was due or extended.
Suggestions:
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).
We are seeing many clients doing small things with employee retraining, such as upgrading their software, adding modules, or modifying their existing software.
Examples include bar coding added to warehouse software, document imaging added for paperless contracts, and electronic prescriptions (ePrescribe) added to patient management systems.
As your clients come out of the recession, look out for those small changes that can add up to sizable tax credits.
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!
We recently met with Glenn Rasco, Vice President of Economic Development at Chattahoochee Tech (click here) to ask him about the Retraining Tax Credit and its benefits in his service area.
He told us about a recent situation where a consultant was helping a large employer with their Retraining Tax Credit. The consultant invited Glenn to meet with him and his client to discuss the tax credit as well as offerings provided by the technical college.
During the meeting, an executive mentioned his difficulty in finding qualified technical candidates for job openings that were planned as part of a large customer order. He was concerned that this difficulty could impact their ability to meet customer demand and limit the number of jobs his facility could create.
Glenn jumped right in, describing the school’s ability to design a customized candidate training program for the employer. It was a no-brainer! The executive agreed to move forward with Glenn’s ideas.
To make a long story short – Glenn’s team designed the candidate training program, marshaled the school’s resources, and recently started the training. The employer is now assured of a ready pool of qualified technical candidates and can confidently take on the new customer order — all because they met with Glenn about the Retraining Tax Credit. This is what economic development incentives are supposed to do!
$1,250 Cap. There still is a $500 per program per employee per year restriction, but starting in 2009 the most that can be claimed for one employee is $1,250 per year.
Approved Retraining. Narrows the definition of approved retraining to exclude any retraining on commercially, mass produced software packages for word processing, data base management, presentations, spreadsheets, e-mail, personal information management, or computer operating systems, unless it is completed by those providing support or training on such software.
One-Year Look-Back. Requires that the credit be claimed within 1 year, starting with the 2009 tax year, instead of the previous 3-year look-back period.
Technical colleges re-organized. Many of the technical colleges have been consolidated as part of the state’s cost cutting program, and many of the folks who approve the Retraining Credits have or will be changed. The final changes will be made in July 2010. We’ll keep you posted.
The new Federal incentives for electronic health records (EHR) technology start in 2011.
In order for a provider to show the required “meaningful use,” the system needs to be installed and operating in 2011. We have seen many practices start their implementations NOW so they can be ready to meet this requirement.
Talk with your physician practice clients soon to let them know they can potentially benefit from this federal incentive AND the Georgia Retraining Tax Credit. In most cases the state credit can equal or exceed the federal benefits!
If your client is a C Corporation, they may be able to benefit from the state tax credits in the future if they can convert to an S Corporation (and keep the same tax ID number).
With all of the $$ pressures on health care, every incentive helps!
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