Clean Energy for America Act Proposes Significant Changes to the §179D Deduction

Note: This bill is currently under consideration by Congress and has not yet been enacted. 

United States in a tangible form

After months of Congressional inaction on the §179D tax deduction—which expired on December 31, 2016—a new bill introduced in the Senate has proposed renewing this important incentive through 2018 and significantly expanding its value for taxpayers. Named the Clean Energy for America Act, the bill was introduced on May 4 by Senator Ron Wyden [D-OR] and 21 co-sponsors and has been referred to the Committee on Finance. This sweeping piece of proposed legislation aims to strengthen and simplify the 44 existing energy tax incentives, many of which are too short-term to fulfill their intended purpose of advancing energy conservation goals in the U.S. Under the Clean Energy for America Act, the §179D deduction would be worth up to $4.75 per square foot for owners of new commercial buildings and up to $9.25 per square foot for owners of existing buildings.

Until its expiration at the end of 2016, §179D offered owners of new or existing commercial buildings a deduction of up to $1.80 per square foot for installing energy efficiency measures in a building’s envelope or lighting or HVAC systems. In the case of buildings owned by tax-exempt government entities, the owner may allocate the deduction to the “primary designer”—such as the architect, engineer, contractor, or energy consultant—of the qualifying improvements. Although the §179D deduction has lapsed, taxpayers still have a limited amount of time to claim it for past projects. Therefore, building owners and designers who have installed qualifying energy-efficient features should contact a tax professional as soon as possible.

If enacted, the Clean Energy for America Act would change this incentive in the following ways:

  • Section 179D would be limited to energy efficiency measures in new construction. The Act proposes creation of a new provision, 179F, for retrofits in existing buildings.
  • The 179D deduction would range from $1.00 to $4.75 per square foot. Taxpayers would be eligible for a $1.00 per square foot deduction for installing features that are 25 percent more efficient than the standards listed in ASHRAE 90.1-2016, and an additional deduction of $0.25 per square foot for every five percentage points over those standards. For example, features that are 30 percent more efficient than ASHRAE 90.1-2016 would qualify for a $1.25 per square foot deduction, features that are 35 percent more efficient would receive $1.50 per square foot, and so on.
  • Under 179F, owners of existing commercial buildings would be eligible for a tax deduction of $1.25 per square foot for installing retrofits that reduce energy consumption by 20 percent over previous levels. They would receive an additional deduction of $0.50 per square foot for every five-percent reduction in energy usage over the 20 percent threshold, up to $9.25 per square foot.
  • Under both 179D and §179F, 501(c) nonprofit organizations—in addition to governmental entities—would be permitted to allocate their deductions to primary designers.
  • As before, energy efficiency measures would have to be certified by a third party using Department of Energy-approved software in order for the taxpayer to qualify for the deduction.

In the years since it was first enacted under the Energy Policy Act (“EPAct”) of 2005, the §179D deduction has created skilled jobs, served as a powerful incentive for building owners to choose sustainable features, and stimulated the national economy by allowing businesses that own commercial buildings to substantially reduce their tax burdens. For these reasons, Capital Review Group is a strong advocate of the Clean Energy for America Act and other bills that would extend and/or expand the §179D deduction.

The team at CRG stays updated on the latest news regarding the §179D deduction and other business tax incentives. Our experts are approved to certify §179D claims and can advise building owners and primary designers on the options available for minimizing their tax burdens through energy-efficient improvements. Contact us today to learn more or schedule a pro bono analysis!



California Considers Legislation to Expand Sales Tax Exemption for Manufacturing and R&D Equipment

Since 2014, California has allowed certain businesses engaged in manufacturing and research and development (R&D) activities to pay a substantially lower sales tax rate when they purchase or lease qualifying equipment. Specifically, eligible businesses are only required to pay state sales and use tax at 3.3125 percent, as opposed to the regular rate of 7.25 percent. This partial exemption was enacted with the goal of bolstering the state’s economy by attracting business and creating high-skilled manufacturing and R&D jobs. However, in light of recent reports indicating that the exemption is underutilized, the California Legislature is considering bills that would expand the measure.

Currently, businesses must meet three requirements in order to claim the exemption. They must:

  • Be a “qualified person” engaged in certain types of business—primarily manufacturing or R&D.
  • Purchase or lease “qualified property,” which is defined to include equipment used in manufacturing or R&D that has a useful life of one or more years, or machinery, fixtures, or other materials used in buildings that are constructed for manufacturing or R&D purposes.
  • Use the qualified property for permitted purposes more than 50 percent of the time. Permitted purposes include manufacturing, processing, refining, fabricating, or research and development in the physical or life sciences, engineering, or biotechnology.

Eligible businesses may claim the exemption for qualifying purchases of up to $200 million per year. While they are still required to pay local sales and use taxes, the exemption could save a business millions of dollars.

Concerns have recently been raised that the exemption is not fulfilling its intended purpose of attracting jobs and investment to California. The 2015 Reshoring Initiative Data Report stated that out of 130,000 manufacturing jobs that were brought back to the U.S. between 2010 and 2015, only 1,479 were reshored in California. Additionally, according to a report that the State Board of Equalization (BOE) delivered to the Legislature on March 1, 2017, businesses claimed approximately $165 million under the exemption in 2016—which is only one-third of the amount that was predicted when the exemption was enacted.

In order to expand use of the partial sales tax exemption and advance the goal of stimulating the state economy, legislators have introduced AB 600 and SB 600. These bills propose several changes to the exemption, including:

  • Raising the $200 million annual limit
  • Extending the exemption to agricultural processors and businesses that produce electric power from alternative sources
  • Adopting a broader definition of “useful life”
  • Extending the current sunset date of July 1, 2022

As the California Legislature considers whether to expand the partial exemption, businesses that conduct manufacturing and R&D activities should consult with tax professionals to determine how they can maximize savings on state sales and use taxes. The team at Capital Review Group (CRG) offers expertise on California tax law, as well as tax issues related to manufacturing and R&D. Contact CRG to learn more or schedule a pro bono analysis!


Section 179D Has Expired, But Commercial Building Owners Can Still Save with These Two Tax Strategies

Between the costs associated with maintenance, utilities, and improvements, owning a commercial building is an expensive endeavor. Building owners face the constant dilemma of how to save money without compromising the comfort of tenants and customers. When considering financial strategies, building owners may discover a boon in the federal tax code.

The §179D deduction, which rewards energy efficiency measures in commercial buildings, has been one of the most powerful tax incentives available to building owners and primary designers since it was created under the Energy Policy Act (“EPAct”) of 2005. This popular deduction expired on December 31, 2016, and Congress is still considering options for its renewal. However, there is a limited amount of time remaining to claim §179D for past projects through the look-back period, so commercial building owners that have installed energy efficiencies should consult with a tax professional immediately. Section 179D offers a deduction of up to $1.80 per square foot when qualifying improvements are made to lighting systems, the building envelope, or HVAC systems.

In addition to §179D, the tax code equips commercial building owners with other tools to substantially reduce their tax burdens, including cost segregation and the tangible property regulations.

Cost Segregation

Cost segregation is an IRS-approved strategy that allows taxpayers to quickly boost cash flow by simply changing the classification of certain property assets. Typically, real property is depreciated over a 39-year period, while tangible personal property is depreciated over five, seven, or fifteen years. Therefore, personal property yields more substantial and immediate depreciation deductions for the owner.

A cost segregation study—which is usually performed by a third-party with engineering and tax expertise—subdivides a real property asset into items that may be considered tangible personal property. Examples of these items include certain types of electrical wiring, carpeting, and wall coverings. By reclassifying these items from real property to personal property, the building owner can take advantage of the shorter depreciation lives and claim accelerated depreciation deductions. This significantly lowers the building owner’s tax burden, thereby generating cash flow that may be used to repair, maintain, or improve the building.

Tangible Property Regulations

The tax code’s tangible property regulations went into effect on January 1, 2014. They apply to all taxpayers that have acquired, produced, or improved tangible property, such as buildings or equipment. The regulations allow taxpayers to expense items that were capitalized as improvements in previous years—enabling them to claim additional deductions and losses. Since commercial buildings are full of assets that sometimes require repair, replacement, or improvement, the tangible property regulations offer an effective way for building owners to reduce their tax burdens. In order to reap the benefits of the regulations, taxpayers should be ready to produce meticulous documentation of improvements, repairs, and dispositions of assets.

Are you looking for ways to cut the costs associated with owning a commercial building and improve your cash flow? With a unique combination of facility engineering and tax accounting expertise, the team at Capital Review Group can help you maximize tax savings through strategies like §179D, cost segregation, and application of the tangible property regulations. Contact CRG to schedule a pro bono analysis!

Small and Mid-Sized Defense Contractors, Have You Considered the R&D Credit as a Tool for Tax Savings?

Research Tax Credit Defense Contractors Capital Review GroupThe United States is protected by one of the strongest and most technologically advanced militaries in the world. A key factor contributing to the U.S. military’s sophistication is the federal government’s use of private contractors to design and manufacture innovative solutions for the nation’s defense needs. Each year, major defense contractors—such as Lockheed Martin and Northrop Grumman—boost their net profits by seizing all of the opportunities for tax savings available to them. However, significant tax savings are not just for large companies. Small and mid-sized military and defense contractors routinely qualify for lucrative incentives like the Research and Development (R&D) or Research and Experimentation Tax Credit, but forego pursuing them due to unawareness or the mistaken belief that they are not eligible.

The R&D Credit was created with the goal of spurring innovation and progress within the U.S. Contrary to a common misconception, the Credit does not only reward scientific or high-tech research; it is available to businesses of all sizes in a wide variety of industries and offers a dollar-for-dollar credit for developing new or improved products, processes, or software. Defense contractors frequently perform activities that may qualify for the R&D Credit. A few examples include:

  • Designing and manufacturing defense equipment
  • Performing engineering calculations
  • Streamlining manufacturing processes
  • Improving equipment
  • And many others

Recent changes have made the R&D Credit more available than ever to small and mid-sized businesses. The Protecting Americans from Tax Hikes (PATH) Act of 2015 permanently added the Credit to the tax code and expanded it for the benefit of businesses without substantial income tax burdens:

  • Smaller businesses can now use the R&D Credit to offset their alternative minimum tax (AMT) burdens. To seize this benefit, a business must have had an average of $50 million or less in gross receipts over the past three years.
  • New businesses, including start-ups, can use the R&D Credit to reduce payroll taxes. These businesses must have been in operation for less than six years and have $5 million or less in revenue for the current tax year, as well as no gross receipts for the preceding five years.

Although the political climate is constantly changing, a recent study conducted by the Center for Strategic and International Studies (CSIS) indicated a growing trend of the federal government awarding military R&D contracts to smaller companies. According to the study, the percentage of contracts between the government and smaller defense contractors increased from ten percent in 2009 to seventeen percent in 2015. In light of this finding—as well as the PATH Act’s expansion of the R&D Credit—now is the time for small and mid-sized defense contractors to review their activities and determine if they have conducted qualified research that may entitle them to significant tax savings.

A taxpayer’s activities must meet a four-part test in order to constitute qualified research eligible for the R&D Credit:

  • The taxpayer must pursue the permitted purpose of creating a new or improved product, process, or software.
  • The taxpayer must seek to eliminate uncertainty about the project. This uncertainty could relate to variables such as the optimal method of completing the project or its cost, design, or capability.
  • In attempting to resolve the uncertainty, the taxpayer must undertake a process of experimentation. Such processes may range from informal trial and error to modeling or computational analysis.
  • This process of experimentation must be technological in nature and must rely on the principles of engineering, physics, biology, or computer science.

Some defense contractors are under the erroneous belief that they cannot claim the R&D Credit if they conducted the qualified research for the benefit of a third party—in this case, the federal government. In reality, the IRS stipulates that if the agreement or contract is entered into before the qualified research is performed, the taxpayer bears the costs even if the research is unsuccessful, and the taxpayer retains some rights to the results of the research, the taxpayer company can claim the R&D Credit.

Given the substantial tax savings available, how can small and mid-sized defense contractors seize this valuable incentive? The amount of the Credit is based upon qualified research expenses (QREs), which encompass amounts spent on supplies and wages paid to employees in the conduct of eligible R&D activities. Taxpayers must provide extensive documentation, such as payroll reports, federal and state tax returns, and project lists. Many states also offer their own R&D tax credits, so businesses that put forth the effort to claim the federal incentive may easily qualify for additional savings.

Wondering if your business could minimize taxes with the R&D Credit? The experts at CRG can help you determine eligibility and guide you through the process of maximizing your savings. Contact us to schedule a pro bono analysis!



What’s Next for the Expired §179D Deduction? 3 Bills Under Consideration by Congress

179D Extension Capital Review GroupOriginally enacted under the Energy Policy Act (“EPAct”) of 2005, the §179D deduction has yielded substantial savings for taxpayers over the years, while benefitting the environment by incentivizing sustainable design. This popular provision offers commercial building owners or primary designers—such as architects, engineers, or contractors—a tax deduction of up to $1.80 per square foot for implementing energy efficiency measures in new or existing buildings. Specifically, the deduction is worth up to $0.60 per square foot for improvements to lighting systems, $0.60 for HVAC systems, and $0.60 for the building envelope.

Despite its widespread support, the §179D deduction has never been a permanent part of the tax code and instead has been repeatedly renewed after lapsing. The deduction most recently expired on December 31, 2016. Unfortunately, legislators have not yet taken definitive action to renew §179D, but three bills have been introduced in Congress. Here are a few possibilities for an extension or expansion of the §179D deduction:

  • H.R. 6361. Sponsored by Rep. Alan Grayson (D-FL) and introduced in the House of Representatives on November 17, 2016, this bill would extend §179D through December 31, 2018.
  • H.R. 6360. This bill was also introduced by Rep. Alan Grayson, but would only extend the deduction for one year—through December 31, 2017. At the time of this writing, no further action has been taken on either H.R. 6360 or 6361.
  • H.R. 6376. A bipartisan effort sponsored by Rep. David Reichert (R-WA) and co-sponsored by Rep. Earl Blumenauer (D-OR), Rep. Tom Reed (R-NY), and Rep. Chris Van Hollen (D-MD), this bill proposes an expansion of the §179D deduction. Previously, tax-exempt governmental entities could allocate their deductions to the primary designers of qualifying energy efficiency measures. This has allowed architects, engineers, contractors, and other designers to significantly reduce their tax burdens based on projects they have performed on public buildings. If enacted into law, H.R. 6376 would also allow 501(c)(3) nonprofit organizations to allocate their deductions to primary designers. In addition, the bill states that partnerships and S corporations would be eligible to receive an allocation of the §179D deduction—which would extend this valuable incentive to many additional small and medium-sized businesses. H.R. 6376 has been enthusiastically endorsed by the American Institute of Architects (AIA).

While the fate of these bills currently remains uncertain, many taxpayers are hoping that lawmakers will approve an extension and possible expansion of the §179D deduction. For now, building owners and primary designers can still claim the deduction for previously completed projects—but time is running out.

Have you recently installed energy efficiencies in a new or existing commercial building, or have you designed such measures for a government-owned building? Act quickly to find out if you qualify for the §179D deduction! Capital Review Group (CRG) is a leading third-party certifier for §179D claims and can review your projects for opportunities to save. Don’t miss out on this valuable incentive—contact CRG today for a pro bono analysis!


Changing Rates Highlight the Costly Pitfalls of Sales Taxes

Sales Tax Capital Review GroupThe election of a new president was not the only pivotal change that occurred on November 8: voters in cities, counties, and states across the U.S. also approved laws that will have significant implications for individuals and businesses. For instance, several cities and counties passed measures that will raise sales tax rates as a way to provide funding for much-needed public projects.

These changing local rates highlight the complex patchwork of sales taxes in the U.S. Businesses responsible for collecting these taxes contend with rates that may vary greatly based on location, type of goods sold, and any exemptions that may apply. As evidenced by the recently passed measures, sales taxes are also subject to change, and the rates in one city may be significantly different from those in a neighboring city. Unfortunately, this variation often results in businesses paying more in sales tax than is required—and thus harming their bottom lines due to preventable errors.

As the year ends and tax season begins, here is some important information on sales tax measures that were recently approved by voters:

  • Los Angeles County, California. Measure M will increase the county’s sales tax rate by 0.5 percent—bringing it to a hefty 9.5 percent. The goal of the increase is to raise funds for a major expansion of the public transportation system, which will encompass everything from pothole repairs to a new rail line.
  • San Jose, California. In June 2016, voters approved a 0.25 percent sales tax increase, which went into effect on October 1. The rate is now nine percent. The increase will be in effect for fifteen years, and the proceeds will be used to maintain infrastructure and improve public safety.
  • State of Washington. Voters passed Proposition 1, which will raise the sales tax rate by 0.5 percent. The funds will be used to expand mass transit—including light rail and bus service—in King, Pierce, and Snohomish Counties.
  • Atlanta, Georgia. Beginning in 2017, the sales tax rate in Atlanta will climb to 8.9 percent from its previous rate of eight percent. A half percent of the increase will be devoted to Metropolitan Atlanta Rapid Transit Authority (MARTA) for improvement and expansion of the city’s public transportation system. In addition, voters approved a 0.75 percent sales tax increase that will apply to all cities in the county, except Atlanta.
  • Palm Beach County, Florida. Voters approved an assertive one percent sales tax increase—from six to seven percent—that will be effective for up to ten years, or until the county has raised enough money to make necessary improvements to schools and infrastructure.

As local governments across the country adjust their sales tax rates, business taxpayers should review their records in order to identify overpayments. This problem is particularly common among businesses that sell goods out of state, as well as those in the hospitality and manufacturing industries. If applicable, businesses may claim refunds for past overpayments of sales taxes.

Does your business contend with confusing sales tax rates? The experts at CRG will review your transactions to identify any overpayments and help you file the requisite paperwork for claiming a refund. Contact CRG today!

5 Ways for Mid-Sized Businesses to Slash Expenses

Savings for Businesses Capital Review GroupBusinesses of all sizes contend with the perpetual dilemma of how to maintain the quality of their goods or services while reaping healthy profits. While small businesses tend to receive abundant financial advice and large corporations are notorious for their cost-cutting measures, medium-sized businesses often overlook the savings opportunities available to them.

From easy eco-conscious practices to lucrative tax incentives, here are five strategies that mid-sized businesses can use to boost their net profits by saving money:

Hire strategically to reduce payroll expenses

Paying employees constitutes one of the most significant expenses that any business faces. How can employers attract and retain talent without offering generous salaries that cut into their bottom lines? Solutions include delegating some duties to independent contractors—which avoids the need to offer full salary and benefits—and hiring entry-level employees or interns. While hiring individuals with limited experience may seem risky, it can result in a mutually beneficial situation in which the employer saves a great deal of money by paying a lower salary and the employee gains much-needed work experience. Another option for offsetting payroll costs is to hire candidates from the Work Opportunity Tax Credit (WOTC) target groups, which include veterans, recipients of government assistance, and summer youths. WOTC represents up to $9,600 in tax savings per qualifying employee hired.

Barter with other businesses

Small and medium-sized businesses tend to operate less formally than large companies, which may allow them to obtain the goods and services they need through bartering. When two businesses determine that they have complementary needs and can mutually fulfill them without paying cash, the exchange often results in cost savings for both.

Adopt sustainability as one of your business values

There are several simple steps that businesses can take to “go green,” benefitting both the environment and their bottom lines. For example, encourage employees to turn off the lights when they leave a room and unplug electronics when not in use—devices can consume electricity (and drive up your electric bill) even when they are powered off. To save money on office supplies, embrace digital mediums instead of paper as much as possible, and consider allowing employees the option of telecommuting.

Replacing older appliances with newer, more energy-efficient alternatives is a powerful way to substantially reduce utility expenses over time. Easy examples include replacing incandescent bulbs in an office building with LED lighting, and installing motion detectors to turn lights off when no one is in the room. Building owners can offset the cost of some of these upgrades by claiming the §179D deduction, which equates to tax savings of up to $1.80 per square foot.

Buy used furniture and equipment

Recycling is not just for paper and plastics. Businesses can purchase a wide variety of used office furniture and equipment at significantly lower prices than their brand-new counterparts. Many of these items are available at furniture consignment stores and retailers that specialize in used office supplies. As an alternative, businesses with limited funds should consider leasing office furniture rather than buying it.

Consult with tax professionals to maximize tax savings

Armed with teams of tax experts, large corporations are adept at diminishing their tax burdens by seizing every available incentive. Smaller and medium-sized businesses, on the other hand, often forego the savings opportunities available to them because they mistakenly assume that they will not qualify. In reality, several valuable tax incentives reward the routine activities of businesses of any size. In addition to WOTC and the §179D deduction, recent changes to the Research and Development (R&D) Credit have made it more available to newer and smaller companies. The R&D Credit offers generous tax savings to businesses—including architecture, engineering, and manufacturing firms—that can show that they engaged in qualifying research activities.

Looking for ways to cut costs and boost your net profits through tax savings? Contact the experts at CRG today!


Commercial Building Owners, Have You Replaced HVAC or Lighting Systems? Let the Government Underwrite Your Project!

How to Qualify for 179D Capital Review GroupSince its creation as part of the Energy Policy Act of 2005 (“EPAct”), the §179D deduction for energy-efficient commercial buildings has generated significant savings for taxpayers while advancing sustainability efforts in the U.S. However, this important tax incentive has never been a permanent part of the tax code and instead has repeatedly lapsed, only to be renewed on a temporary basis. Currently, the §179D deduction is due to expire on December 31, 2016. Although there is a chance that it will be renewed, eligible taxpayers should act swiftly to implement energy-efficient upgrades that qualify for the deduction.

Section 179D is available to owners of new or existing commercial buildings, as well as the primary designers—such as architects, engineers, and contractors—of sustainable improvements to government-owned facilities. The deduction is worth up to $1.80 per square foot, or up to $0.60 per square foot for upgrades to HVAC systems, $0.60 for lighting, and $0.60 for the building envelope. Therefore, larger buildings yield greater tax savings.

To qualify for §179D, upgrades implemented in 2016 must exceed ASHRAE Standard 90.1-2007—as opposed to the less rigorous Standard 90.1-2001 that applied in previous years—by certain specified percentages. Projects must be certified by a third party using IRS-approved software. Here are some examples of energy efficiency measures that may satisfy the requirements of §179D:


Given the complexity of heating, ventilation and air conditioning (HVAC) systems, there are many ways to improve their efficiency. One way to accomplish this is by implementing a Building Management System, which typically records data about energy usage and conditions in the building and contains controls to manage consumption. For example, Building Management Systems may incorporate “smart” technologies that use varying amounts of energy based on occupancy levels in the building. These automated control systems are overwhelmingly better at improving energy efficiency than manual control by humans—even in buildings with newer, energy-saving HVAC units. Other ways to improve the energy efficiency of HVAC systems include:

  • Geothermal systems
  • Thermal energy storage
  • Variable Refrigerant Flow (VRF) zoning
  • Energy-efficient upgrades to a building’s hot water heaters


Replacing traditional incandescent lightbulbs with LEDs is one of the easiest steps that building owners can take to reduce energy consumption. Although LEDs are more expensive initially, they last longer than other bulbs and ultimately save money through lower utility costs. Additionally, building owners can offset the cost of installing LED lighting with the §179D deduction. Other ways to qualify for §179D through improvements to lighting systems include installation of timers, dimmers, and motion detectors. In most facilities, bi-level switching is required for §179D claims. Bi-level switching is a combination of manual and/or automatic controls that create two levels of lighting power—not including “off.” For example, occupancy sensors that dim or turn off some lights constitute bi-level switching, but sensors that turn off all of the lights in a space do not.

Building Envelope

A building’s envelope—or the space between its conditioned interior and the outdoors—includes windows, doors, external walls, and more. The energy efficiency of the building envelope impacts that of other systems in the building. For instance, if a building is well-insulated, less energy will be required for heating and cooling. There are numerous §179D-eligible upgrades that may be made to the building envelope’s components. These include:

  • Smart solar skylights
  • Energy-harvesting wireless building automation controls
  • Window films
  • Low emissivity (low-e) glass

While the above improvements are excellent ways for building owners to enhance energy efficiency, it is crucial for taxpayers to consult with §179D experts to ensure that projects satisfy the requirements for seizing the deduction. As a leading third-party certifier for §179D claims, Capital Review Group has helped numerous clients save thousands of dollars while reducing their energy costs and creating more comfortable environments within their commercial buildings. This widely beneficial incentive is expiring soon—contact CRG today for a pro bono analysis!


The End of the Year is Approaching—Act Now to Maximize Tax Savings

End of Year Business Tax Savings Capital Review GroupAs the year enters its final quarter, the time has come for businesses to begin assembling paperwork and planning strategies to minimize their tax burdens for 2016. Many business tax incentives require extensive documentation that takes a great deal of time to prepare, so early action is recommended in order to secure optimal results at tax time.

In previous years, taxpayers faced substantial uncertainty regarding the tax extender provisions, which typically expired at the end of each year and were later renewed retroactively. Fortunately, the Protecting Americans from Tax Hikes (PATH) Act of 2015 either made permanent or implemented multi-year renewals of several tax extenders, including the Research and Development (R&D) Credit and the Work Opportunity Tax Credit (WOTC). However, the future of the §179D deduction for energy-efficient commercial buildings remains in question, as this valuable provision is currently due to expire on December 31, 2016.

As the end of the year looms on the horizon, here are some steps that businesses can take to prepare for maximum savings during tax season:

Install energy efficiencies and claim the §179D deduction. Although there is a chance that the §179D deduction will be renewed, commercial building owners and the primary designers—including architects and engineers—of government buildings should act swiftly to take advantage of this incentive before the end of 2016. Section 179D offers a deduction of up to $1.80 per square foot for energy-efficient improvements to commercial or government buildings. Specifically, taxpayers may seize deductions of up to $0.60 per square foot for improvements to lighting, $0.60 for HVAC, and $0.60 for the building envelope. Projects completed in 2016 must comply with ASHRAE Standard 90.1-2007 and must be certified by a third party with Department of Energy-approved software. In addition, taxpayers must support §179D claims with information such as floor plans showing the energy-efficient improvements, the cost of the project, and the date it entered service.

• Gather records of research and development activities. Businesses in several different industries—including architecture, engineering, and manufacturing—may be eligible for significant tax savings through the R&D Credit. Thanks to changes under the PATH Act, the R&D Credit is now available to more businesses than it was in previous years. However, to access the benefits of the credit, taxpayers must support claims with meticulous documentation detailing R&D activities from at least the past four years. Examples of the requisite documents include payroll reports for employees who worked on the activities, a project list with cost summary, and the company’s federal and state tax returns. Preparing these items is a time-consuming task, so businesses that think they may be eligible for the R&D Credit should consult a tax professional and begin the process sufficiently in advance of tax season.

• When recruiting new employees, consider candidates who would qualify under the Work Opportunity Tax Credit (WOTC). Although the deadline for the WOTC look-back period passed on September 28, employers may still claim WOTC when they hire a worker from one of the target groups—which include veterans, summer youths, and recipients of government assistance—and file Forms 8850 and 9061 with their state workforce agencies (SWAs) within 28 days of the new hire’s start date. With WOTC providing tax savings of up to $9,600 per qualifying employee hired, businesses should consider the credit as a way to substantially offset the costs of growing their workforces.

• Consult a professional to review sales tax records for possible overpayments. With sales tax rates and exemptions varying widely between different jurisdictions, it is common for businesses—particularly hotels and manufacturers that sell goods out of state—to pay more than they owe. Businesses can rectify this costly mishap by having a tax professional review their sales transactions, identify overpayments, and assist them with filing the paperwork needed to claim a refund.

As your business begins end-of-year preparations for the upcoming tax season, the experts at Capital Review Group are available to help you navigate the complexities of the tax code and ensure that you maximize your savings. Contact CRG today to schedule a pro bono analysis!

5 Misconceptions that Prevent Businesses from Reaping the Benefits of the R&D Credit

Research Tax Credit Capital Review GroupEach year, the Research and Development (R&D) Credit saves businesses billions of dollars in taxes—yet many other businesses forego the opportunity to seize this valuable incentive. Erroneous beliefs about the types of activities that constitute qualified research and other misconceptions about the R&D Credit are some of the most common hurdles standing between eligible taxpayers and the substantial savings available to them.

The Protecting Americans from Tax Hikes (PATH) Act of 2015 made the R&D Credit a permanent part of the tax code and implemented other changes that have rendered it available to more businesses. In light of this expansion, taxpayers should ensure that they are not harboring the following misconceptions that could prevent them from reaping the generous savings offered by the R&D Credit:

Only businesses that are engaged in scientific or technological research are eligible for the R&D Credit.

While the phrase “research and development” is often associated with laboratories and test tubes, businesses in a wide variety of industries—including architecture, engineering, and manufacturing—routinely perform activities that constitute qualified research. To meet the requirements for R&D Credit eligibility, an activity must satisfy a four-part test:
• The purpose must be to create new or improve the existing functionality of a business component.
• The taxpayer must intend to eliminate uncertainty about the activity.
• The activity must involve a process of experimentation designed to evaluate one or more alternatives.
• The process of experimentation must be scientific in nature and based upon the physical or biological sciences, engineering, or computer science.

Only large, established companies with significant income tax liabilities would benefit from the R&D Credit.

In reality, the credit is available to businesses of all sizes, and changes under the PATH Act have expanded its utility for new companies and small businesses. Beginning in 2016, businesses may apply up to $250,000 of R&D Credits against their payroll tax liabilities if they have been in operation for less than six years, had no gross receipts in the past five years, and have gross receipts of $5 million or less for the current tax year. Furthermore, businesses that have averaged $50 million or less in gross receipts over the past three years may now use the R&D Credit to offset their alternative minimum tax (AMT) burdens.

The R&D Credit can only be applied against current tax liabilities.

If a business is unable to use all of the R&D Credits available to it in the current tax year, it may carry them forward up to twenty years.

A business must develop a brand-new product or process in order to qualify for the R&D Credit.

An activity that improves a business component may be considered qualified research, as long it satisfies the four-part test. For example, a manufacturing company may be able to claim the credit for improving a process, such as by making it more efficient or environmentally friendly.

The R&D Credit is not worth the effort required to gather the supporting documentation.

Businesses seeking to claim the credit must be able to produce extensive documentation regarding the qualified research, such as payroll records for the employees who worked on it, a project list with cost summaries, and federal and state tax returns. While gathering these records may be time-consuming, the substantial tax savings that result make the effort worthwhile for most businesses. For example, Capital Review Group helped one client, a business that employed architects and engineers, save approximately $163,000 over three years. Invoking the assistance of tax professionals who offer expertise on the R&D Credit will ease the burden of preparing the necessary documentation and ensure that maximum savings are attained.

Unsure whether your activities qualify for the R&D Credit? The experts at CRG will help you clear the confusion and boost your bottom line with this lucrative incentive. Contact CRG today!