Research and Development
1981 Economic Recovery Tax Act: In a temporary effort to boost the economy in 1981, the federal government sought to use the passage of the Economic Recovery Act incentives to reward businesses for investing in research and developing new products, processes, formulations, technology, techniques and innovations. With the rapid changes in technology in the past decades, companies across multiple industries have seen increasing challenges to constantly innovate their products or processes to compete across a global economy. Business owners small and large understand the expensive and time-consuming risks that drastic innovations pose and thus, often failing—yielding no financial return on investment.
Recognizing the need to create jobs domestically and maintain global economic competitiveness, Congress has extended the economic Recovery Act incentives and more than a dozen times over subsequent years making them permanent with the passage of the PATH Act of 2015. In addition to becoming permanent, the Protecting Americans from Tax Hikes act expanded R&D incentives and credit provisions to start-ups and small businesses. The R&D incentives and credits are now available to any U.S. business that spends time and resources on new development, improvements, or technological advancements in an effort to improve upon its products or processes. The credit could also be available to American Business owners who have improved upon the performance, functionality, reliability, or quality of existing products or trade processes.
Employee Retention Tax Credit: In order to provide economic relief to businesses and individuals during the Coronavirus pandemic, the CARES (Coronavirus Aid, Relief and Economic Security) Act was signed into law in March 2020. This $370 billion stimulus package makes funding available to small companies, which can be used to allow certain employers who retain employees during the crisis, to claim a tax credit.
The ERC allows eligible employers to claim a credit against 50% of wages paid per quarter, up to $10,000 per employee annually, for wages paid between March 13, 2020 – December 31, 2020. The maximum credit is $5,000 per employee.
In December of 2020, under the Covid-19 Relief Package, the ERC was extended from January 1, 2021 – December 31, 2021. This extension allows eligible employers to claim a credit against 70% of wages paid per quarter, up to $10,000 per employee, with a maximum allowable credit of $28,000 per employee.
WHICH BUSINESSES QUALIFY & HOW?
There are multiple ways that a business can qualify for ERC: 1. full or partial suspension of business operations as a result of government order or, 2. a significant decline in revenue compared to the same quarter in 2019, 3. Alterations or modifications to the business in order to stay open, 4. Federal, State, County, Local and/or Health Department Mandates of Orders, 5. Supply chain challenges (ie. Supplier cannot procure raw materials and/or parts to make products), Decline in revenue is defined as equal or greater than 50% for 2020 and equal or greater than 20% for 2021.
WOTC (Workers Opportunity Tax Credit: The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment.
WOTC joins other workforce programs that incentivize workplace diversity and facilitate access to good jobs for American workers.
The Consolidated Appropriation Act, 2021 (Section 113 of Division EE P.L. 116-260) authorized the extension of the Work Opportunity Tax Credit (WOTC) until December 31, 2025.
Notice 2021-43 PDF, issued on August 10, 2021, provides transition relief by extending the 28-day deadline for employers hiring individuals who are Designated Community Residents or Qualified Summer Youth Employees who begin work on or after January 1, 2021, and before October 9, 2021, to submit a completed Form 8850 to the designated local agency (DLA) no later than November 8, 2021.
Notice 2020-78 PDF, issued on December 11, 2020, provides transition relief for employers that hired certain individuals residing in empowerment zones by extending the 28-day deadline for employers who submit a certification request for an individual who began work between January 1, 2018, and December 31, 2020.
The certification of an individual as a Designated Community Resident under § 51(d)(5), or as a Qualified Summer Youth Employee under § 51(d)(7), requires that the individual reside within an empowerment zone.
Cost Segregation: What is Cost Segregation? Cost Segregation is an application by which commercial property owners accelerate depreciation and reduce the amount of taxes owed. This savings generates substantial cash flow that owners often use to reinvest in business, purchase more property, apply to their principal payment or spend on themselves.
How Does Cost Segregation Work? ABIS has an experienced and qualified company, performs an engineering-based cost segregation study on your property. The study accelerates the depreciation of your building/renovation components into shorter depreciation categories such as 5-, 7-, 15-year rather than the conventional 27.5- and 39-year schedules. Five- and 7-year items might include decorative building elements, specialty electrical for dedicated computer equipment and medical equipment, and carpet, tile, etc. Fifteen-year items might include site utilities, landscaping, and paving. This engineering-based cost segregation study results in a much higher depreciation expense and significantly reduced taxable income for the property owner. Best of all, tax code ruling states cost segregation can be applied to categories of buildings purchased or built since 1986, including renovations.
American Business Incentive Services offers the above as well as other Federal and State Tax Incentives and have the experience to know how to maximize each credit individually or collectively to legally, ethically and morally your recovery.
MORE ABOUT THE CREDITS
As of January 1, 2016, Eligible Small Businesses (ESBs) can use the credit to offset the Alternative Minimum Tax (AMT). An ESB can be a non-publicly traded corporation, partnership, or sole proprietorship with annual revenues under $50 million for the three tax years prior to the current year. Credits can be retroactively captured subject to special rules under section 448(c)(3). Section 41 of the Internal Revenue Code lays out the rules and regulations surrounding the R&D incentives. There are a couple misconceptions surrounding the new regulations; 1) it is difficult to apply for the credits and, 2) it is restricted to a small group of industries. This could not be further from the truth. The goal of the PATH Act is to encourage innovation in businesses across the United States. The U.S. courts and states alike have ruled in favor of business activities that make jobs faster and more efficient. This could be anybody from a contractor who uses new materials to create green energy efficient improvements, to a manufacturer improving production processes through investment in new technology.