Tax credits and incentives offer major financial benefits for businesses—from reducing tax liability to increasing bottom lines. Unfortunately, there are many firms that make promises that are too good to be true when it comes to these services without delivering the results they’ve promised. That’s why it is essential to exercise caution with credit and incentive management in order to avoid costly missteps.
Overview of Tax Credits and Incentives
As a business, you have the potential to reduce your tax burden with credits and incentives. This is an advantage over deductions which merely lower taxable income but doesn’t provide as big of a benefit in terms of reducing taxes owed. These credit programs are designed to foster economic growth and investment through job creation and other activities for businesses that take part in them.
Credits and incentives can be a great way for businesses to maximize their resources, potentially creating savings critical to fueling desired activities. These government-run programs target key industries such as R&D or job creation in at-risk populations while providing the potential of retroactive credits that could kick in after being qualified over time. There are three basic types: nonrefundable, refundable, and partially refundable. Depending on the business classification, industry makeup, and performed activities—there’s sure to be one tailored just right!
R&D Tax Credits
Companies of all sizes can utilize R&D Tax Credits to unlock a major advantage in innovation—with the potential to save up 15% on qualifying activities, at both Federal and State levels. To reap these rewards, your company must be involved in technical development for new or improved products/processes including product improvements, software creation, process enhancements, and more! Simply put, passing the four-part test could mean great savings for you.
Employee Retention
The Employee Retention Tax Credit (ERTC) has been a lifeline for businesses struggling amidst the COVID-19 pandemic. Through this refundable tax credit, employers may receive up to $26,000 per employee as an incentive to help cover wages during potential closures or quarantines – and after recently being expanded with retroactive eligibility provisions in 2021, even more, people can take advantage of its financial relief!
IRC Section 179D
Looking for ways to reduce energy costs in an eligible commercial building? Consider taking advantage of IRC Section 179D. This tax incentive provides up to $1.80 per square foot off your taxes if you install qualified, energy-efficient buildings and systems that decrease power and operating expenses by at least 50% compared with minimum standards set out under the law. Tenants who make construction changes are also eligible. Eligible structures include warehouses, parking garages, universities & libraries owned/operated by government entities as well as apartment complexes four stories or higher!
Work Opportunity Tax Credit
As an employer, you have the potential to invest in America’s job seekers struggling with barriers to finding employment. The Work Opportunity Tax Credit encourages and rewards this investment through a federal tax credit for businesses that choose qualified candidates from WOTC target groups such as veterans, ex-felons, or those long-term unemployed. To access the benefits of this program employers must first verify applicants are members by submitting certifications confirming their eligibility status.
Risks Associated With Claiming Tax Credits And Incentives
Claiming tax credits and incentives can lead to financial savings, but it’s important to recognize the potential risks as well. An IRS audit may be a requirement when filing for certain credits or deductions – an activity that can require significant time and resources with no guaranteed reward. Proceed carefully when claiming these forms of relief on your taxes!
While tax credits are a great way to save on your taxes, care should be taken when claiming them. Overstating the amount can lead to an IRS audit that could uncover further problems beyond just the incorrect filing of credit—issues that often carry penalties and interest costs. Moreover, there exist certain incentives that do have payback requirements; failing to meet these obligations may result in hefty repercussions down the line. Familiarizing yourself with all sources of savings is vital before submitting returns if you want to avoid any potential headaches or losses later!
Red Flags To Look For In Tax Credit And Incentive Providers
With tax credits and incentives offering tremendous potential to reduce your taxes, you’ll want to carefully consider the provider that can help you achieve maximum savings. Consider a certified public accounting (CPA) firm—while non-CPAs may not adhere to strict regulations or have adequate experience, trained professionals are better equipped with the knowledge needed for holistic assessments of your business operations. But be wary when selecting providers; choosing an unqualified one could lead to audits from the IRS! Here’s what to watch out for:
1. Standalone Tax Credits And Incentives Firm
If you’re not working with a CPA, take caution. Many firms use inexperienced recent graduates who are more sales-focused than knowledgeable in accounting principles. This could lead to costly mistakes and misunderstandings when it comes to your complex tax matters – trust an experienced standalone tax credits and incentives firm for the solutions you need!
2. They Only Take Contingency-Based Payments
When looking for a tax provider, it’s important to make sure you understand the payment structure. Contingency-based payments where firms take 25-35% of the savings recouped in fees can be tempting and seem appealing at first glance; however, this approach invites potential complications down the road. For instance, if your auditor sees that such payments have been made then they may assume bad faith and look through past credits with extra scrutiny. On top of that, auditors are even allowed to go back as far as three years on returns! It’s best not to risk it and stay away from contingency terms altogether when selecting someone who will handle your taxes responsibly.
3. They Market A Team Of “Experts” With Irs Or Legislative Backgrounds
Protect yourself from the potential pitfalls of dealing with tax credits by verifying a firm’s employee qualifications. Make sure they have actually worked in IRS and legislative positions before hiring them, as this type of expertise is essential to properly handling your taxes. Don’t be tricked into believing flashy marketing gimmicks that are designed to lure you away without having any proof to back up their claims!
4. They Bundle Tax Work With Controversy And Audit Support
Filing taxes can be a tricky business, so it pays to get expert help. Many firms offer special packages that combine tax work with controversy and audit support in an effort to attract customers but if you are already confident about your organization’s taxation system these services may not be necessary or cost-effective. Trust the knowledge of individualized specialists when seeking professional advice on filing returns; after all, getting superior service is always worth paying for!
5. There Is A History (Often Public) Of A Toxic Work Culture
When you’re considering a firm, don’t forget to do your research— it could save you from an unpleasant experience. Type the firm’s name into Google and see what pops up; if multiple stories of sexual harassment or lawsuits against former employees or clients appear on screen then that should signal alarm bells and be seen as a potential warning sign!
6. Targeting Of Less-Sophisticated Businesses As Clients
It pays to stay informed if you’re looking for a professional service. Some firms might target less-experienced businesses and rely on dishonest tactics trying to entice them with promises of luxury cars or other rewards—steer clear! Educate your team about potential red flags, so everyone is equipped when it comes time to make big decisions.
7. They Employ A “Cut-And-Paste” Approach
Claiming tax credits, such as the R&D Tax Credit, need to be done year after year with updated evidence. Firms who take a “cut and paste” approach from previous years have not taken sufficient care which can cause an IRS audit – so make sure you chose a diligent provider who takes time each financial period!
Tax credits and incentives can be incredibly beneficial for you—if applied correctly. Finding the right tax provider to maximize your returns is key, but how exactly do you find a trustworthy one? At Coastal Tax, our team takes into account every aspect of your operations so that they can pinpoint areas where valuable savings through Credits & Incentives are possible! Please reach out to us at 843.549.5561 to get started.
