Paying taxes is a certainty in life – so much so there’s an oft-repeated Mark Twain quote to that effect. While your tax strategy may not get you out of your tax liabilities all together, taking a holistic look at the available federal and state and local opportunities available can significantly reduce your tax bill, and in some cases, even result in cash refunds.
The fall-out from the COVID-19 disruption has enhanced some of these opportunities in the first half of 2021. If your organization hasn’t considered some of these plays recently, you may want to explore the following provisions in short order.
1. Employee Retention Tax Credits
It’s challenging to keep up with all of the provisions in federal government COVID-19 relief packages and all their requirements. However, these programs can be real cash savers.
Recently, the Congress supercharged an incentive for companies to retain more employees. The Consolidation Appropriations Act, 2021 (the Act) and President Biden's American Jobs Plan make several important modifications to the Employee Retention Tax Credit that both expand and extend its application. Credits for 2020 can now be claimed even if a PPP loan was obtained, and the renewed program runs through the end of 2021. A few major changes for the 2021 credits include--
- Increased credit rate from 50 to 70% of qualified wages;
- Expanded eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20%
- Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter.
2. Property Tax Appeals
Real and business personal property taxes are a huge expense for many companies. But treating property tax as an unquestioned fixed cost means you could be missing out on opportunities to manage and potentially dramatically reduce your bill. Real property tax assessments are done in huge batches in “mass appraisals”. These mass appraisals don’t take the detail of your individual property fully into consideration so there’s ample opportunity for mistakes and potential over billing. Business personal property taxes are often self-declared and you may find upon closer review that your company has been overstating its business personal property for tax reporting purposes.
3. State Credits and Incentives
State and local governments really do want to see your business succeed. That’s why many of them have created some generous credits and incentives. Many states offer cash grants and other tax incentives to help you cover the cost of adding net new hires and other investments. But be forewarned: These grant and incentive programs require negotiations and submission of applications before investments in net new hires, new locations and new equipment are made, so time is of the essence.
4. Federal Credits and Incentives
Similarly, Congress has made or increased many credits and incentives during the pandemic. There are too many to fully cover here, but you may want to pay special attention to the following two lucrative incentives:
- Research and Development (R&D) Tax Credit - Offers generous tax incentives for companies who are undertaking product or software development or improvement. It reduces the current year’s effective tax rate and can trigger cash refunds from previously filed income tax returns.
- Energy-Efficient Commercial Buildings Deduction - The Act made permanent the Section 179D deduction for energy efficiency improvements to a building envelope, lighting, heating, cooling, ventilation and hot water systems of commercial buildings.
5. Sales & Use Tax Analysis
Properly complying with sales and use taxes rules can be a real nightmare. Especially if your business operates in multiple jurisdictions. No one wants to get sideways with tax collectors so there is a tendency to err on the side of overpaying. Fortunately, third-party sales and use tax professionals can help make sure you haven’t overpaid. If you have, they can help you find all the exemptions you qualify for and help file accurate documentation for a refund.
For More Information
The key to accessing tax savings is to act early and work with a professional who understands the tax landscape. For more information, please contact a member of our team.
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