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!
There are now SIX Georgia income tax credits that can be utilized against Georgia payroll withholding taxes in lieu of income taxes. In 2012, several changes were made, including the addition of the Job Tax Credit (for certified competitive projects).
Utilizing the tax credits against withholding taxes can be complex and confusing. There are very strict deadlines for filing notices, applications, income tax returns and other documents. Another important issue — your client’s payroll provider must be (or become) knowledgeable about the details of applying the tax credit against withholding taxes. Click here for the Notice of Intent for claiming the tax credit against withholding taxes).
If your client does not have Georgia income tax liability, then utilizing against withholding taxes is a great option in the right situation.
Now that the Legislature is through for another year, the rest of us can relax a little, and the State can get back to business as usual. Governor Deal has spent the last month signing bills and cleaning up after the legislators:
- HB 868 was signed as expected and makes welcome, albeit modest improvements to the Job, Quality Jobs, R&D, and Port Bonus credits.
- The governor signed HB 386 at the annual Georgia Manufacturing Appreciation Week luncheon (click here). This bill eliminates the state sales tax on energy used in manufacturing, mining, and agriculture.
- We heard from statewide economic developers recently that the tax credits have really helped attract new business to Georgia as well as helping to strengthen existing businesses.
- We also know that there are plans to strengthen the business-related tax credits in the 2013 session.
We are frequently asked which entity can utilize the Georgia tax credits. This becomes confusing with mergers, acquisitions, tax structure changes, and other complexities. Here are some basic things to keep in mind:
- Operating entity: where is the company’s operation? If it is a manufacturing company, which tax entity buys the raw materials and pays the employees and other related costs? For example, a real estate entity that leases land and buildings to a manufacturing entity cannot utilize the investment tax credit because it does not manufacture (even though both entities are owned by the same equity owners).
- C corporations: Georgia Form 600 allows the tax credits to be assigned to another “affiliated entity.” This can only be done in the current year and NOT amended returns. Assigning tax credits does not apply to pass-through entities that file Form 600S or 700.
- Tax structure conversion (that is, change tax structure, but keep the same EIN)
- From C to S: tax credits carried forward by a C corporation can be distributed to S corporation equity owners via K-1 after the conversion.
- From S to C: tax credits carried forward by equity owners cannot be assigned to the C corporation after the conversion.
- Blockers, roll-ups, tuck-ins, investment vehicles, and other complexities: check with Pamela Goshay at DOR (click here).
Did you know that the little 6 digit NAICS code (North American Industry Classification System, 2007 edition, click here), on the first page of your clients’ Georgia corporate income tax return, can help you find tax credit $$? In fact, they may qualify for multiple tax credits resulting from business activities:
- Job Tax Credit: Must be a Business Enterprise (Manufacturing, Telecommunications, Distribution, R&D, Processing, Tourism, Broadcasting, Services to elderly/disabled). If more than one business activity is conducted at your client’s location(s), only those jobs engaged in a qualifying activity will be eligible. But the jobs’ activities can help you find a hidden business enterprise inside (click here for a listing of Job Tax Credit qualifying NAICS codes).
- Investment Tax Credit: Must have manufacturing or telecommunications activity. The same principle applies — that is, your client may have multiple business activities at its locations (click here for a listing of Investment Tax Credit qualifying NAICS codes).
Here’s an example of a retail establishment that on the surface can only use the Retraining Tax Credit. Their NAICS is 453998 – All Other Miscellaneous Store Retailers. However, behind the retail front they also engage in a manufacturing activity, NAICS 311800 – Bakeries and Tortilla Manufacturing. This manufacturing activity makes them eligible for multiple tax credits – Retraining, Job & Investment Tax Credits.
So if you have a new client, or if you need to energize your relationship with an old one, dig into their business activities to determine if their NAICS code is correct. Or find one that was hidden in plain sight! Ask your clients a few more questions during this tax season, and you may flesh out $$ today and in the future!
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!
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!