Tax Credits

The Research and Development Tax Credit (Federal)

• The R&D Tax Credit is one of the most beneficial tax credits available. Made permanent with the passage of the Protecting Americans from Tax Hikes Act of 2015, this non-refundable credit is available to businesses of all sizes and is designed to encourage the development of innovative and enhanced products, processes, and software in the United States. As both a federal and a Georgia credit, the R&D Tax Credit is one of the largest business tax incentives provided by the U.S. and state government.

  The R&D Tax Credit is calculated at 20 percent of the excess of an eligible taxpayer's qualified research expenses over a base amount. Qualified research expenses are comprised of all internal or contract research expenses paid or incurred by a taxpayer in carrying on trade or business. These expenses include (but are not limited to) salaries and wages, supply cost and contractor costs (i.e., contract research). In order to qualify as a qualified research expense, the research activities have to be conducted on U.S. soil and they must pass a four part test outlined in the Internal Revenue Code (IRC §41). The base amount is determined in reference to the total qualified research expenses for the previous three years. The R&D Tax Credit is incremental in nature - meaning that in order to realize greater benefits from the credit, a taxpayer must increase their research expenses over time
  

Research and Development Tax Credit (Georgia)

• The Georgia R&D Tax Credit is available to any business that increases its qualified research spending in the state. Just as the qualified research expenses have to be incurred on U.S. soil to be eligible for the federal R&D Tax Credit, the qualified research expenses have to be incurred in Georgia to be eligible for the Georgia R&D Tax Credit. Whereas the federal credit can be carried back one year and forward twenty years, the Georgia credit can be carried forward ten years and is able to offset 50% of net Georgia income tax liability.

  Often times, taxpayers do not realize that the work that they are doing is innovative and qualifies for the R&D Tax Credit. The activity does need not be an "innovative" and have an industry-wide impact - as long as the R&D work is related to improving your businesses products or processes, it may be a qualified research and development expense. It is recommended that all business involved in some type of research and development activities have a feasibility study to determine the amount of the possible federal and state credits available to them. The credit can be taken for all open tax years. Thus, the tax benefits of conducting a research and development credit feasibility study and a R&D Tax Credit study could be tremendous and help to generate enormous tax savings over several years.

  If you believe that your business is conducting some research and development activities eligible for either the federal or Georgia credit, HLB Gross Collins, P.C. can assist you.

The Work Opportunity Tax Credit ("WOTC") is a Federal credit provided to employers hiring persons belonging to specific groups, and there are special guidelines with extended credit for qualified veterans. The goal of the WOTC is two-fold: first is to help targeted workers move from economic dependency to self-sufficiency by earning a steady income and becoming contributing taxpayers, and second is to help employers reduce their income tax liability. There is no limit on the number of individuals an employer can hire to qualify and claim the credit, but there is a maximum tax credit that can be earned.

Created in 1996, the WOTC has been modified several times since its establishment, the most recent of which was the passage of the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) which retroactively reauthorized the credit for a 5-year period from December 31, 2014 to December 31, 2019.

The target groups of the WOTC are below. Each group has its own qualifications and applicable WOTC amounts.

• Unemployed Veterans (including disabled veterans)
• Temporary Assistance for Needy Families (TANF) Recipients
• Food Stamp (SNAP) Recipients
• Designated Community Residents (living in Empowerment Zones or Rural Renewal Counties)
• Vocational Rehabilitation Referred Individuals
• Ex-Felons
• Supplemental Security Income Recipients
• Summer Youth Employees (living in Empowerment Zones)
• Qualified Long-term Unemployment Recipients

Employers qualifying for the WOTC can typically earn a tax credit equal to 25% or 40% of a new employee's first-year wages, up to the maximum for the target group to which the employee belongs. The 25% credit is if the employee works at least 120 hours, and the 40% credit is if the employee works at least 400 hours. The total amount of WOTC is limited to 90% of business income tax liability or social security tax owed. Depending on the employee's target group and the number of hours worked, the maximum credit ranges from $1,200 to $9,600.

If you believe your business qualifies for the Work Opportunity Tax Credit, please contact us.

Is your company investing in employees through means such as new equipment, new software, or new technology? If so, your company may be eligible for the Georgia Retraining Tax Credit. The purpose of this credit is to encourage employers to continuously invest in their employees via the very means mentioned above - upgrading equipment, acquiring new technology, and even completing ISO 9000 training.

Only eligible programs qualify for the Georgia Retraining Tax Credit. Eligible programs must be designed to enhance quality and productivity or to teach certain software technologies. The retraining tax credit covers expenses incurred as part of the retraining, although the cost of the new equipment, software, or technology itself is not covered. Covered expenses must be approved by the Technical College System of Georgia and include:

• Cost of instructors
• Cost of teaching materials
• Employee wages during retraining
• Reasonable travel expenses

The retraining credit is a Georgia-only credit that can be used to offset up to 50% of a company's Georgia income tax liability. The actual credit amount amounts to 50% of the covered retraining expenses up to $500 per full-time employee per program. The maximum annual credit per employee is $1,250. Should the credit not be fully used in one year, the excess can be carried forward for 10 years.