Be Careful With Tax Credits and Filing Deadlines!

We recently had several cases that reminded us to tell you to be careful with tax credits and tax filing deadlines for pass-through entities (S-corporations, Partnerships and LLCs).
Example:  Your client’s equity owners may want their K-1 earlier in the year so they can file their individual tax return no later than the April 2018 tax deadline. However, your client may extend the corporate tax return to provide extra time to fund their retirement.

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!


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.


After Tax Season: Tax Credit Reviews!

Now that the April 18 tax deadline has passed, it’s a great time to review the tax credits that your clients are using (or NOT using). Schedule After Tax Season Reviews for client analysis, planning and follow up during the slow summer months.
ANALYSIS – Start with your tax software. By leveraging the software’s report writer and data analytics, you may be able to find a lot of opportunities. Here are a few areas to analyze:
  • Which of your corporate clients are using tax credits?
  • What about the individuals that receive K-1s from companies that are not your clients?
  • What about other incentives such as cost segregation and Section 179-D ?
PLANNING – Now develop a plan to follow up with your clients for the following situations:
  • Using credits – If the corporate or individual clients are using tax credits, how has their experience been? What other credits should they be considering? What are their plans for 2017 and beyond?
  • Not using credits – If the client is not using tax credits, you need to find out why. What assistance can your firm or other 3rd party firms provide?

FOLLOW UP – For each client, schedule an in-person meeting! It’s a great opening to review the custom analysis you prepared and discuss opportunities for tax credits and other incentives. Most importantly, it will strengthen your relationship with your client and may bring more $$ business to your firm.


Beating the Buzzer with Tax Credits

March Madness for college basketball and Tax Season for CPAs will be ending soon. In basketball, everyone can hear the loud buzzer at the end of the game. But in the game of filing taxes, it may be harder to know if you beat the buzzer! Knowing when returns get “officially” filed is especially critical for amending prior year returns with tax credits. And if you miss the date, the tax credit may be gone forever.
For example, a Georgia job tax credit may be filed on an amended return within one year of the original, timely filed return.  Many times the difficulty in identifying the filing date involves the difference between the date you sent the tax return vs. the date DOR acknowledged receipt of the tax return. DOR has details about filing tax returns and due dates (click here). In addition, DOR has made changes for the 2016 tax filing (click here).
Here are some things to keep in mind about identifying “official” tax filing dates:
  • 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!


Who’s That Knocking on Your Client’s Door About Tax Credits?

Warning!  Your clients may be reaching out to you during this crazy tax season asking about tax credits that they have heard about. Where did they hear about these? Here are a few real world examples:
  • 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!


Job Tax Credit Changes

As you are doing year-end tax planning with your clients, make sure you discuss job tax credit potential for 2016. Here are several Georgia changes in 2016 that may apply to their businesses:
  • New Job Tax Credit regulations to clarify terminology and calculations (for new regulations, click here).
  • New Opportunity Zones started in 2016 include Baldwin, Lake City, and Savannah (for complete list, click here).
  • The new DCA contact for job tax credits is Tricia DePadro – Program Manager, Tax Credit Program, 404-679-1585, . Dawn Sturbaum has retired.
  • New Parolee Job Tax Credit – This is a new tax credit that starts January 1, 2017. A company can claim up to $50,000 per year for hiring qualified parolees. There is a 3 year carry forward (for regulations, click here).

Review your clients’ potential for 2016. Job Tax Credits may be available if they increased employment levels, opened new locations in Georgia, or bought another company.  And that’s how changes to tax credits can increase value $$ in your client relationships!


Tax Credits Bring Value $$ to Client Relationships

Tax credits can bring value $$ to your client relationships by strengthening your role as a trusted business advisor, expanding your service offerings, and even enabling higher billing rates!
If you don’t want to be just “another” CPA that only files tax returns, what can you do to bring greater value to your clients? 
  • Trusted business advisor – By looking at your client’s entire business, including their business and equity owners’ tax structure, you can provide guidance and strategy to help your clients this year and in the future. Tax credits can be an important part of this discussion.
  • Expanding your services and offerings – You can become the “go to” person for any and all incentives that may apply to current and prospective clients. This resource (including 3rd party incentive providers) will provide massive differentiation to your firm.
  • Higher billing ratesMoving from “tax filer” to business advisor allows you to provide more value and charge higher $ billing rates.
So get to know your clients, their industry and specific incentives that may apply to them. Connect with incentive providers that know these industries. Offer to have in-person meetings with clients where you can explore, advise and recommend (at a higher billable rate) tax credits. Help your client by working along with the incentive providers. And that’s how leveraging tax credits can greatly increase value $$ in your client relationships!

It’s So Easy to Give Up on Tax Credits

You’ll have to admit that sometimes your clients are just not interested in tax credits. They think that obtaining credits will require too many resources, are not worth the $$ benefits, or may be too risky. Not digging into the details is often the path of least resistance — it’s so easy to give up on tax credits.
Your clients complain about paying taxes, and they certainly let you know it loud and clear, yet they often don’t want to investigate if they can benefit from the available credits and 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 $$ in taxesyou will be viewed as a better trusted advisor, and your client’s relationship with you (“stickiness”) will be strengthened.
But before you bring up tax credit ideas to your clients, you may need to check your reliable resources. These resources may be others in your CPA firm, independent tax credit providers, your firm’s alliance/affiliated network, tax research databases (such as Thompson Reuters), or other sources of expertise. Try to leverage these resources to develop an estimate of $$ benefits and costs, and then review with your client.

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!


Massachusetts Credits and Incentives

As we’ve mentioned before, our Georgia clients frequently ask us to investigate potential credits and incentives in other states where they have operations, potential acquisitions or strong relationships with customers or vendors. In addition, private equity groups ask us about potential $$ for their portfolio companies.
We were recently asked about credits and incentives in Massachusetts, and their state economic development professionals gave us some details ( ecdev site click here).
Massachusetts offers a selection of credits and incentives for new and existing businesses, mainly geared toward larger projects.  CNBC ranked Massachusetts #20 in their 2015 America’s Top States for Business survey (Georgia was #5 in the same survey).    
Incentives and Credits include:
The Economic Development Incentive Program (EDIP) — Includes the categories of Certified Expansion Project (EP), Enhanced Expansion Project (EEP), and Manufacturing Retention Project (MRP).  Involves up to a 10% EDIP- Investment Tax Credit (ITC) and local incentives.  Massively complex process, and   pre-approval is always required, of course.

Job Creation Incentive Program — Qualifying biotechnology and medical device manufacturing companies are eligible to receive incentive payments for new job creation.  Create 10 or more eligible jobs in the Commonwealth during a single calendar year.

Other Tax Credits — Credits for Investment (manufacturing, research, some others), Research and Development (similar to other states), and other special and assorted incentive programs.

Compared to Georgia, Massachusetts has:
  • Much higher corporate and higher personal income tax rates.
  • Higher combined state and local tax burden
  • A narrower range of incentives.
  • Pre-approval required for all incentives
To summarize, Massachusetts is below average for business tax incentives,but they do enjoy a prime Northeast location.


Tax Incentives “Below the Line”

Tax incentives that impact a company’s income taxes are considered “below the line.”  They are not part of the EBITDA calculation (Earnings Before Interest, Taxes, Depreciation, and Amortization) and only benefit income tax payers.  But tax payers may be the company itself (such as a C-Corp) or individual shareholders (pass-through entities).
Many tax incentives for companies are based on activities that the company has already done or plans to do.  Depending on the type of company and location, a company may be able to benefit from the following Federal and State tax incentives and related activities:


  • 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!


Pattern Recognition for Tax Credits

Your tax software may be able to help you find patterns in your client’s tax data that could uncover tax credits! During tax season, everyone is busy collecting and reviewing client tax data. After it has been reviewed, this data is entered into the tax software, and the software usually helps guide you through the steps required to file the tax returns.

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.

Here are a few tax categories that could include indicators of potential tax credit 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.


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!


“Professional” Tax Credits!

Did you know that your professional service firm clients could get Georgia tax credits?  Here’s why — more than ever, professional service firms are continually updating and adding new technologies. Your clients that provide Advertising, Architectural, Consulting, Accounting (including yours!), Engineering, Insurance Agency, Law, Marketing, Public Relations, Software Development, Training, Wealth Management, and others, could be eligible:
  • Job Tax Credits – For firms adding employees and located in Opportunity Zones, Military Zones, or Tier 1/Lower 40 counties.
  • Retraining Tax Credits – For training existing employees on new technologies that include new software, upgrades, additional modules, customized systems and business process changes.
 The following areas offer great potential for Retraining Tax Credits:
  • Business management systems – main business systems for operating the firm, such as Deltek Vision, SAGE, Aderant, Epic, or other software, including annual updates
  • Customer relationship management systems (CRM) – for business development, lead generation, prospective client tracking, and new client intake such as
  • Document management systems – for paperless operations and workflow
  • Specialized systems – CAD, design, project management, engineering analysis, tax, audit, case management, time & material tracking, portfolio analysis and other software
  • Lean Office – similar to Lean Manufacturing initiatives for quality, cost and customer service improvements.
  • Marketing systems – website, social media, LinkedIn, Twitter and other e-commerce systems

Reach out to your professional service firm clients to let them know about the potential $$ waiting for them!


Year End Tax Planning and Obamacare

Now that the October 15 tax deadline has passed, I hope you are rested and back to work! The next big things on your plate are year-end tax planning with your existing clients and reaching out to prospective clients.

While you discuss upcoming tax liabilities with a client, you can also point out how much they can save with tax credits. What does that have to do with Obamacare?

The bad news:  the ACA (Affordable Care Act) requires additional reporting by every company with 50 or more full time employees (called “Applicable Large Employer,” or ALE). Click here for details.

The good news: based on our experience with thousands of retraining tax credit (RTC) projects over the past 13 years, companies with 50+ employees almost always have qualifying activities for Retraining Tax Credits!

The following may help with your client discussions:
  • Last year: Any changes to their business or related software? How about head count increases? Any expansions, new locations or large capital expenditures?
  • This year: Same as above and any plans for November or December
  • Next year: What are they planning to do?

So you see, the Obamacare reporting requirements are a great leading indicator for tax credit opportunities.  Bottom line: ALE = $RTC. Good luck as you reach out, find out, and help out with tax credits.


New Hampshire Credits and Incentives

As we’ve mentioned before, our Georgia clients frequently ask us to investigate potential credits and incentives in other states where they have operations, potential acquisitions or strong relationships with customers or vendors. In addition, private equity groups ask us about potential $$ for their portfolio companies.
We were recently asked about credits and incentives in New Hampshire, and their state economic development professionals gave us some details (New Hampshire Economic Development site click here).
New Hampshire offers very few tax credits, grants or loan programs for new and existing businesses.  CNBC ranked New Hampshire #30 in their 2015 America’s Top States for Business survey (Georgia was #5 in the same survey).    
Incentives and credits include:
  • The New Hampshire Research and Development Tax Credit enables businesses to apply for tax credits on new research and development costs they can use toward business taxes paid. The credit can be carried forward for up to five years.
  • The Economic Revitalization Zone tax credit offers a short term business tax credit for projects that improve infrastructure and create jobs in designated areas of a municipality.
  • The Coos County Job Creation tax credit is awarded to businesses hiring employees for new, full-time positions that pay wages 200 percent higher than the minimum wage.

Other incentives include the New Hampshire Job Training Fund (50/50 cash match grant $750 to $100,000 for customized training) and a few revolving loan funds.

Compared to Georgia, New Hampshire has:
  • Higher corporate and lower personal income tax rates.
  • A far far narrower range of incentives.
  • Pre-approvals required for all incentives
To summarize, New Hampshire is below average for business tax incentives.  But their Eastern Seaboard location could provide advantages, depending on logistical needs.
Do any of your clients have New Hampshire connections?  If so, you will need to start collecting information and planning early!


Driving to Tax Credits!

Automobile dealership are rebuilding their facilities, expanding their operations, utilizing more technologies, and adding employees. In Georgia, these activities could qualify for the following state tax credits:

  • Job Tax Credits – If the company has locations in Opportunity Zones, Military Zones, or Tier 1/Lower 40 counties.
  • Retraining Tax Credits – For training existing employees on new technologies that include new software, upgrades, additional modules, customized systems and business process changes.

The following areas offer great potential for Retraining Tax Credits:

  1. Dealer management systems (DMS) – main business system for operating dealerships, such as CDK Global (formerly ADP), Reynolds & Reynolds, DealerTrack or other software, including annual updates
  2. Customer relationship management systems (CRM) – for the sales team in the new car, used car and service areas such as eLead, Vin Solutions, Lead generation systems and Business development center systems
  3. Vehicle key security systems – for key control, management, security and tracking
  4. Technician training – on new technologies needed for maintenance, repair, refurbish and other vehicle services
  5. Document imaging – for paperless contracts and agreements
  6. E-Commerce – manage inquiries, inventories, and parts; schedule vehicle service and other customer needs

Any or all of these qualifying activities (for future and prior years) could provide hidden tax credits that drive your clients’ AND your business.