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!

(Sources: https://defensesystems.com/articles/2016/09/16/defense-r-and-d-spending-small-vendors.aspx, https://www.irs.gov/businesses/audit-techniques-guide-credit-for-increasing-research-activities-i-e-research-tax-credit-irc-section-41-qualified-research-expenses).

 

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!

(Sources: https://www.aia.org/press-releases/24331-architects-endorse-house-legislation-expandi, https://www.congress.gov/search?q={%22source%22:%22legislation%22}).

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!

(Sources: https://smallbiztrends.com/2016/10/business-cost-cutting.html).

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:

HVAC

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

Lighting

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!

(Sources: http://hotelexecutive.com/newswire/39615/financing-hvac-and-building-controls-with-179d-deductions, https://enewsletters.constructionexec.com/managingyourbusiness/2012/11/going-green-with-the-179d-tax-deduction/, http://www1.eere.energy.gov/buildings/publications/pdfs/corporate/commercial_tax_179d_faqs.pdf, https://www.iea.org/publications/freepublications/publication/technology-roadmap-energy-efficient-building-envelopes.html).

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!

5 Important Steps to Tax Savings as the Extended WOTC Deadline Approaches

Work Opportunity Tax Credit WOTCEach year, the Work Opportunity Tax Credit (WOTC) saves taxpayers tens of thousands of dollars for undertaking a step that is essential to growing their businesses: hiring new employees. Typically, employers must file the requisite paperwork for claiming WOTC within 28 days of hiring a qualifying worker. However, for 2015 and part of 2016, the IRS granted taxpayers a special opportunity to retroactively seize the savings available through WOTC.

Under IRS Notice 2016-40, businesses may claim WOTC for employees hired between January 1, 2015 and August 31, 2016, as long as they file the paperwork with their state workforce agencies (SWAs) by September 28, 2016. With potential tax savings of up to $9,600 per qualifying employee—and no limit on the number of eligible employees—businesses should act swiftly to determine if they have hired any workers who qualify for WOTC during the look-back period. As the deadline for taking advantage of this generous opportunity rapidly approaches, here are the steps that businesses must take in order to reap the benefits of the Work Opportunity Tax Credit:

1. Review all hiring decisions made between January 1, 2015 and August 31, 2016, and determine if any new workers were hired from a WOTC target group. Designed to assist individuals who have faced significant obstacles in securing employment, these groups include veterans, recipients of certain forms of government assistance, youths who work for the employer over the summer, ex-felons, and more. Businesses may also claim WOTC if, on or after January 1, 2016, they hired members of the most recently added target group—long-term recipients of unemployment assistance. For a complete list of target groups and the specific requirements for each, visit the Department of Labor’s website.
2. Verify the number of hours that each eligible hire worked during his or her first year of employment. The exact credit amount available to employers depends upon the group from which the individual was hired, the number of hours that he or she worked in the first year, and the wages paid. For most target groups, if a new hire completes the minimum of 120 hours of work in his or her first year of employment, the employer is eligible for a tax credit of 25 percent of the wages paid, up to the maximum amount for the target group from which the individual was hired. If an employee works at least 400 hours, the employer’s credit amount may reach 40 percent of the first-year wages.
3. File Form 8850, Pre-Screening Notice and Certification Request, with the SWA for the state in which the business is located no later than September 28. The SWA will rely on this form to ensure that the new employee belongs to a target group. Form 8850 must be signed by both the employer and the new hire. This form is available for download at the IRS website.
4. Submit either Form 9061, Individual Characteristics Form, or Form 9062, Conditional Certification Form, to the SWA by September 28. Some applicants receive Form 9062 from participating agencies, such as Job Corps; Form 9061 is used for all other applicants who may qualify the employer for WOTC. Employers may download Form 9061 at the Department of Labor’s website.
5. Once an employee is certified as WOTC eligible, businesses must submit Form 5884 to the IRS in order to claim the credit. This form is typically submitted with the employer’s federal tax return.
Although this special look-back period is ending soon, WOTC will be available through 2019 under the Protecting Americans from Tax Hikes (PATH) Act. For workers hired on or after September 1, 2016, businesses will have to comply with the standard 28-day deadline for submitting paperwork to their SWAs. As employers prepare to make future WOTC-eligible hires, they should ensure that they have effective screening processes in place in order to simplify the process of claiming this valuable incentive.

The tax code is rife with complex requirements and rigid deadlines. Therefore, one of the most important steps that businesses can take when seeking to maximize their tax savings is to invoke the help of professional tax experts. Capital Review Group is experienced at helping clients offset the costs of hiring and improve net profits with WOTC. The clock is ticking for this rare WOTC look-back period—contact CRG today!

(Sources: https://www.irs.gov/pub/irs-pdf/i8850.pdf, https://www.doleta.gov/business/incentives/opptax/wotcEmployers.cfm).

Architects, Engineers, and the R&D Tax Credit: An Underutilized Opportunity to Save

Tax Savings for Architects and EngineersFrom developing environmentally friendly buildings to navigating complex design requirements, architects and engineers routinely drive growth, innovation, and societal progress through their work. Each year, the Research and Development (R&D) Tax Credit saves businesses hundreds of thousands of dollars for performing such activities—but this powerful opportunity for tax savings is often overlooked by architects and engineers.

As 2015 drew to a close, the R&D Credit entered a new era of expanded usefulness for many businesses, including architecture and engineering firms. Although the credit was created in 1981, the 2015 tax year marked the first year that it was a permanent part of the tax code. Previously, the R&D Credit’s goal of spurring technological innovation in the U.S. had been stymied by a pattern of nearly annual expiration followed by renewal. However, the Protecting Americans from Tax Hikes (PATH) Act of 2015 finally made this popular incentive permanent.

The PATH Act also modified the R&D Credit to make it more available to small and medium-sized businesses, including architecture and engineering firms. Previously, business taxpayers were only able to use the R&D Credit to offset their income tax liabilities. Beginning in 2016, however, certain businesses with an average of $50 million or less in gross receipts over the past three years will now be able to apply the R&D Credit toward their alternative minimum tax (AMT) liabilities. In addition, the PATH Act extended the R&D Credit to newer businesses that have been in operation for less than six years, had no gross receipts for the five preceding tax years, and have gross receipts of $5 million or less in the current year. These businesses may use the R&D Credit to offset their FICA payroll tax liabilities. For these taxpayers, the amount of the credit is limited to $250,000 and cannot exceed the FICA liability during a given quarter.

Traditionally, many architecture and engineering firms have wrongly assumed that the R&D Credit only rewards groundbreaking innovation and scientific research and is, therefore, unavailable to them. However, since the IRS relaxed the rules for claiming the credit in 2003, this valuable incentive has been widely applicable to taxpayers in these industries. A four-part test determines which activities constitute qualified research:

• The purpose of the activity must be to create new or improve the existing functionality of a business component. Many activities that architects and engineers commonly perform in the course of their business operations satisfy this prong of the test. Examples include developing designs that incorporate energy efficiency measures or account for unique client requirements, site conditions, or building codes.
• The taxpayer must intend to eliminate uncertainty that exists at the outset of the project. Typically, architects and engineers encounter many variables at the beginning of a project, such as what the optimal design will be and which materials should be used. Seeking to resolve these variables fulfills this requirement.
• The project must involve a process of experimentation that is designed to evaluate one or more alternatives. Architects and engineers often test different design concepts through computer modeling, engineering calculations, and other activities that may satisfy this prong.
• The process of experimentation must be technological in nature and must rely on the physical or biological sciences, engineering, or computer science.

The taxpayer’s savings under the R&D Credit are based upon qualified research expenses (QREs), which include wages paid to employees and other amounts expended in the conduct of qualified research. Any claim of the credit must be supported by meticulous documentation of the amount of time employees spent working on the qualifying activity, how much they were paid, records demonstrating that the activity satisfied the four-part test, and more.

With the expanded opportunities now available to architecture and engineering firms under the PATH Act, now is the time for businesses in these industries to consider the R&D Credit as a lucrative tool in their tax strategies. Capital Review Group has extensive experience in helping architects and engineers determine if they qualify and harness maximum savings with the R&D Credit. Contact CRG today for a pro bono analysis!

5 Methods for Manufacturers to Boost Net Profits

Money Saving for ManufacturersRegardless of the product they are creating, all manufacturers face the dilemma of how to control costs while maintaining high quality standards. From the costs of labor and raw materials to those associated with keeping machinery in prime condition and operating the typically large buildings in which manufacturing facilities are housed, businesses in the manufacturing industry contend with numerous expenses that compromise their profitability. 

Fortunately, there are several strategies available for manufacturers to reduce expenses and improve their bottom lines. Some of these strategies are found in the federal tax code and are often overlooked by manufacturing businesses.  

As a manufacturer, have you considered these five methods for saving money? 

1.    Optimize the manufacturing process. Developing more efficient manufacturing processes is the key to striking an ideal balance between high quality and low costs. Techniques for streamlining processes include ensuring that the engineering, production, and sales teams are communicating with each other, and carefully monitoring the amount of material that is wasted during production in order to identify opportunities for saving resources.

2.    Claim the Research and Development (R&D) Tax Credit. Contrary to a common misconception among many businesses, the R&D Credit does not reward only high-tech innovation and scientific pursuits. Each year, this underutilized incentive saves billions of dollars for businesses of all sizes across a wide variety of industries. If a manufacturing company succeeds in developing a more efficient process, it may constitute a qualifying activity for the R&D Credit. Other examples of qualifying R&D activities include improving equipment or creating a more environmentally friendly product or process.

3.    Incorporate sustainable design into manufacturing facilities. The industrial sector consumes an estimated 30 percent of all energy used in the US, with manufacturing industries accounting for most of this amount. Manufacturing operations typically require sprawling buildings and equipment that guzzle resources. Therefore, sustainable design offers an excellent opportunity for manufacturers to cut costs. By implementing systems and fixtures that conserve energy and other resources, the owners of manufacturing facilities can significantly reduce utility expenses. Due to the vast savings that decreasing consumption yields, sustainable design is growing in popularity among manufacturers, and many are pursuing LEED certification for green building. This highly respected designation carries the added bonus of attracting the attention of an increasingly eco-conscious pool of consumers.

4.    Seize the §179D deduction. In addition to the savings on utility costs that stem from adopting sustainability, the tax code offers commercial building owners a generous opportunity for tax savings. Section 179D provides a deduction of up to $1.80 per square foot for energy-efficient upgrades to new or existing buildings. Taxpayers may claim a maximum deduction of $.60 per square foot for lighting, $.60 per square foot for HVAC, and $.60 per square foot for the building envelope. For owners of large manufacturing facilities, these savings can quickly amount to a substantially reduced tax burden. Using §179D, Capital Review Group helped one client, a steel manufacturer with an 88,000 square foot warehouse, harness $53,000 in tax savings by replacing outdated 400-watt lightbulbs with an energy-efficient alternative. Although there is a strong chance that this lucrative incentive will be renewed, it is currently due to expire at the end of 2016, so now is the time for commercial building owners to seek sustainable upgrades.

5.    Consider other strategies for tax savings. The tax code contains numerous strategies that commercial building owners can use to reduce their expenses. For example, cost segregation allows the taxpayer to claim accelerated depreciation deductions by simply reclassifying certain real property assets as tangible personal property. In addition, the tangible property regulations allow all taxpayers who have acquired, produced, or improved tangible property to seize additional deductions and losses for assets that were capitalized as improvements in previous years. 

These methods are just a few examples of ways that manufacturing businesses can reduce operating expenses and boost their net profits. To learn more, contact CRG to schedule a pro bono analysis!  

(Sources: http://www.manufacturing.net/article/2013/09/six-steps-streamlining-manufacturing-processes, http://www.eia.gov/todayinenergy/detail.cfm?id=8110, http://www.environmentalleader.com/2016/07/25/why-sustainable-manufacturing-facilities-are-green-buildings-next-big-thing/).