Page 42 - Provoke Magazine Vol4

Are You Missing a Tax Credit?
Shawn Washington
A recent Gallup survey indicates the uncertainty of small-business owners’ optimism about their financial situ- ation as well as a drop in their future expectations after the recent government shutdown. Gallup reports the top lessons learned from small-business owners from prior recessions. The top responses focused on budget and spending practices while keeping an eye on the economic environment. Nota- bly missing from this report was the significant advantage small-businesses can gain by taking advantage of govern- mental tax credits implemented to promote economic re- covery.
Provoke Magazine met with Richard Cole, a financial strat- egist who specializes in the tax credit arena to discuss this often overlooked benefit for small and mid-sized companies. The primary federal legislation behind his business is the Economic Recovery Act of 1981. Within the Act, there lies a provision for several business tax credits to help owners strategically advance their economies through research and innovation. The Research and Development tax credit, as it is known, was extended by the PATH ACT of 2015 as a per- manent provision for the small business community.
But, what is it?
The research credit allows small and mid-sized companies to receive a benefit for incurred qualified research expenses. The research must be undertaken in the search for new in- formation and its application must be intended for develop- ing a new or improved business component for the taxpayer. The maximum Research Credit allowed per year is $250,000, for a total maximum limit of $1,250,000 over five years.
The Research & Development tax credit allows a business owner to request credit for activities related to creating new systems; products; and processes within their practice. What does that mean? When a business discovers a new way of doing something they are able to take a credit based on the invested amount in the discovery. The catch? Businesses must file taxes and report a profit for the year. The IRS will not allow you to take a credit when you are only taking loses.
In a nutshell, whenever a business owner designs, devel- ops or improves any product, process, technique, formula, invention, or software he may be eligible to receive this cred- it. If a company invests time, money and resources toward an improvement they may be eligible.
Cole explains that most companies self-censor and don’t focus on the research and tax credit advantage. Research from Senator Chuck Grassley’s office confirms that 85% of tax credits and incentives are taken by larger corporations. Cole comments that small and medium-sized business own-
ers are “leaving money on the table”.
1. U.S. Small Business Owners’ Optimism Down From Record High - Wells Fargo/Gallup Small Business Index, Jan. 9-15, 2019.
2. www.treasury.gov - “Processes Are Needed to Identify Small Businesses Erroneously Claiming the Research Tax Credit Payroll Tax Offset” Dec. 19, 2018. Ref# 2019-40-014
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Cole is a financial strategist with the Austin based firm, American Benefits Exchange. Cole comments that the legis- lation allows them to look back 3 years and file an amended return to capture these credits. Cole and American Benefit Ex- change have helped thousands of small businesses find these credits using the talents of some 14 tax specialists and accoun- tants.
People often miss out on the money spent on new software, learning new ways to solve problems, and new techniques learned to provide their service. These may get captured as a business expense, but overlooked when it relates to the R&D credit. “Ignorance is costly.”
CPAs are critical and essential to the small business owner; however, there is a need for a more holistic approach to min- ing all the benefits offered by the government. It can be diffi- cult to “think outside the box”. By box, Cole is referring to the tax software box used by so many accountants and tax prepar- ers during tax season. The pressure to meet the tax deadline can be horrendous.
Not only does Cole get to help entrepreneurs build their own future, but he also enjoys what he does. Sometimes an infusion of fresh capital is the difference between success or failure. Cole says “it was right there all the time. How exciting to help make dreams come true.” He cites his biggest challenge as the non-compliant client. Individuals who fail to keep re- cords as they should. Not keeping good records makes it dif- ficult to track the number of credits that business owners may be entitled to. The solution, “Hire a good accountant.” Cole comments that most of the time people are skeptical about the benefit.
As a small business owner, Cole does not see himself as an advocate for others he can assist. Not knowing about these economic benefits only hurts those who could take advantage of the relief provided. With that said, it might be a good idea to talk to your tax professional about these opportunities or contact Richard Cole at Richard@ciannagroup.com.
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P. 214-907-3238
F. 214-722-0002
PO Box 6147 McKinney, TX 75071