WOTC: There’s More to Tax Credits Than You May Think

Work Opportunity Tax Credit (WOTC): What You Need to Know

 

Federal, state and local governments structure their business tax systems in a manner that benefits their communities and pushes companies to behave in ways that help common well-being. With tax incentives like the Work Opportunity Tax Credit (WOTC), for example, the federal government is using tax discounts to encourage fairer hiring practices – and businesses across the country have been cashing in.

 

Did you know that, through the WOTC, the government has been helping disadvantaged employable citizens get and keep more jobs? It’s initiatives like these that help military veterans and formerly incarcerated citizens take part in the labor force, and it’s a win-win: businesses get a tax discount and perfectly employable citizens get access to jobs.

 

You might be wondering: how many different tax credits and incentives are there that businesses can actually capitalize on? The answer is a lot.

 

From personal tax credits to investing in Opportunity Zones, there are a multitude of ways that both businesses and individuals can benefit from favorable tax laws – and the potential grows even more if they use the right tax credit management solution.

 

But before we get into the different types of tax incentives, let’s first take a quick look at the Work Opportunity Tax Credit as an example, and how businesses that claim this credit are supporting their communities through their hiring practices – and paying less in taxes as a result.

 

What is the Work Opportunity Tax (WOTC) Credit?

 

As part of the federal government’s efforts to aid employable citizens in certain groups who find it hard to land a job, the Work Opportunity Tax Credit (WOTC) was created. This federal tax credit can be claimed by businesses that hire and continue to employ people in specific target groups that face significant employment barriers – like military veterans and vocational rehabilitation referrals.

 

How Does The WOTC Credit Work?

 

First things first: the WOTC is a tax credit, meaning a dollar-for-dollar reduction in a tax bill. This is compared to a tax deduction, which – instead – is a reduction in taxable income.

 

The WOTC is provided on a per-employee basis, so businesses who qualify can claim a tax credit on each employee that meets the required characteristics. How much each tax credit ends up depending on a few factors:

– Which “target group” the employee falls in

– How many hours that employee worked in their first year on the job

– How much they are paid during their first year on the job

 

Which types of employees are covered under the WOTC?

 

This tax credit can be claimed for employees that fall under these categories:

– Qualified military veterans

– Recipients of Temporary Assistance for Needy Families (TANF)

– Qualified Recipients of Long-Term Unemployment

– Recipients of Supplemental Security Income (SSI)

– Recipients of Long-Term Family Assistance

– Recipients of the Supplemental Nutritional Assistance Program (SNAP)

– Summer Youth Employees

– Vocational Rehabilitation Referrals

– Designated Community Residents (DCRs)

– Ex-Felons

 

Each category has its own specific requirements and conditions, and you can check them each out in more detail here.

 

How much is each WOTC credit worth?

 

The tax credit amount that a business is entitled to, on a per-employee basis, is really dependent on which category they fit into, and how much they got paid during their first year of employment. Each tax credit has a maximum dollar value that caps off between $6,000 and $10,000 per employee.

 

What about other types of tax credits?

 

Healthier communities are made possible with more access to jobs, at which the Work Opportunity Tax Credit is aimed. But what about all the other ways that tax programs like this help our society? Aren’t there multiple tax credits and incentives that businesses of all sizes can claim?

 

Tax Credits Go Far Beyond Just the WOTC

 

Just like the government provides tax discounts to spur wide-scale employment of groups who face difficulty in obtaining and retaining jobs, there are a number of other tax credits that financially encourage the improvement of certain aspects of society. Opportunity Zones, for instance, spark investment in economically-neglected regions. There are personal tax credits, too.

 

And for businesses, it’s not just the WOTC – there are several types of tax credits that range from where businesses choose to operate and what types of equipment they opt to use. It’s no wonder so many firms opt to use tax credit management software to juggle them all.

 

Other Types of Tax Credits and Incentives for Businesses

 

Governments, from cities to the federal administration, have developed a number of other tax incentives for companies of all sizes. Beyond the Work Opportunity Tax Credit, businesses are able to benefit from:

– Alternative Motor Vehicle Credit: By choosing to purchase a vehicle powered by an alternative fuel source, like the hydrogen fuel cell Honda FCX Clarity, businesses can claim a credit of up to $8,000.

– Employer-Provided Child Care Credit: Employers that directly fund the child care costs for its employees can claim a tax credit of up to 25% of the total child care expenses (up to $150,000 per year).

– Disabled Access Credit: For businesses that invest in providing physical access to people with disabilities, they can claim a maximum tax credit of $5,000 on $10,000 of spending towards the necessary infrastructure.

Business tax credits like these, and others like the Qualified Research Expenses Credit or the Alcohol Fuels Credit, are the government’s way of influencing businesses to operate in a better, more socially-conscious manner.

 

Businesses aren’t the only ones the government is trying to influence, however.

 

It’s not just for businesses – there are personal tax credits too

 

Sure, a regular person can’t claim the Work Opportunity Tax Credit – they aren’t a business employing workers, after all. Thankfully, tax credits and incentives are provided to individuals and families as well, not just to businesses.

 

You’ve likely already heard of (or even claimed) a personal tax credit, like the Child Tax Credit for parents, but there are a number of personal tax credits you may not have even known existed, like:

– Adoption Credit: This is a tax discount for parents who adopt children (not including their spouse’s children), and covers up to $13,810 in adoption costs per child.

– Lifetime Learning Credit: For taxpayers attending post-secondary school.

– Savers Tax Credit: A tax discount for those of us contributing to a retirement program like a 401(k).

You might be surprised by which personal tax credits you qualify for – so go check them out (don’t forget to have a look at tax deductions, too).

 

What about other types of tax incentives?

 

The government has methods of encouraging development and social stability through other types of tax incentives, like for investors.

 

For example, investors can get deferred and reduced tax liabilities if they put their money into what are called Opportunity Zone Funds. These funds are investment vehicles that are designed to benefit specific, targeted areas in the United States – places into where investment isn’t naturally flowing.

 

Investors who decide to invest in Opportunity Zone Funds can reduce their tax burden on certain capital gains by up to 15%, and even cut their tax bill down to zero if they maintain their investment for more than ten years.

 

Getting the Most Benefit Using Tax Credit Software

 

From the Work Opportunity Tax Credit to the Child Tax credit, and even investing in Qualified Opportunity Zones, there are seemingly countless ways that companies can save money on their taxes.

 

The hard truth, however, is that many businesses don’t have the resources to get the most out of these government-backed programs. There are simply too many tax credits and incentives, each with their own complex requirements, for small-to-medium-sized firms to effectively capitalize on each one they’re eligible for.

 

Without leveraging a leading tax credit management tool, many business owners are losing out on a ton of savings each year – money that could be reinvested to stimulate growth. That’s why proactive businesses turn to The OIX for their tax credit management, to help plan and organize the complicated, ongoing struggle that is claiming multiple tax credits and incentives every year.

 

As a top-tier tax credit software provider, The OIX provides its clients with immediate visibility and control over their tax incentive plans, while optimizing profitability and ensuring compliance.

 

Amazon HQ2 New York: Tax Incentives Misunderstood

Amazon HQ2 New York: Tax Incentives and Superb Fiscal Policy Exceptionally Misunderstood

 

The recent Amazon HQ2 turmoil in Long Island City (“LIC”) has left many scratching their heads and wondering:

 

– Where did so much misinformation come from?

– Was this a case of inexperienced public policy analysis?

– Where were the economists in the room?

– Was the policy condemned because certain aspects of negotiations were held in secret, and perhaps some constituents affected by the decision were not consulted?

– And now, as the dust settles, do opponents recognize the impact of losing out on what would have been an incredible generational win for LIC and the people of New York?

 

Many opponents of Amazon HQ2 LIC expansion and development project viewed the incentive package crafted by state and local officials as a nearly $3 billion-dollar handout from the government. However, a thorough examination of the details of the proposed initiative reveals a vastly different perspective. Did opponents truly believe that New York Governor Andrew Cuomo and New York City Mayor Bill de Blasio had an extra $3 billion to finance other public works projects? In truth, the reality is very, very different.

 

The Breakdown of the Amazon HQ2 New York Incentive Package

 

By offering Amazon a compelling tax incentive package, the State and City of New York proposed a transfer of value, if you will, in return for direct economic investment in the local community. Amongst other commitments, the company would have needed to:

 

– Employ 25,000 full-time, high-paying and quality jobs;

– Indirect support of an additional 82,000 jobs;

– Approximately $2.5 billion in direct investment;

– 4 million square feet of energy-efficient office space developed with an opportunity to expand to 8 million square feet;

– Incremental tax revenue estimated at more than $27 billion over the next 25 years. [1]

 

The OIX Amazon HQ2 Infographic

 

And like all recipients of negotiated incentive offerings, the company would have been required to agree to a checks-and-balances regimen (compliance) to ensure it was delivering on its end. Failure to comply at any point during the lifecycle of the proposed incentives (e.g. not hiring as many people as promised) could result in a clawback, recapture, or forfeiture of the tax incentives.

In losing out on the opportunity to become the next big tech hub in America, LIC also potentially lost tens of billions of dollars of ancillary and additional economic activity, property value increases, and vast improvements to public services to support the permanent infrastructure that would have been the benefactor of Amazon HQ2 Big Apple expansion.

Contrary to what opponents of this once-in-a-lifetime opportunity may believe, this deal had the makings of a truly sound economic development policy. Perhaps the location of the next Silicon Valley and vital tech-hub will be in another American city, but there is no guarantee of that. The competition for high-value jobs and good corporate citizens like Amazon is global in nature and incentives have been cropping up around the world to woo them. The only thing we know for sure at this moment is that it will not be in Long Island City.

 

Amazon’s HQ2 Long Island City Expansion Plans and the Severe Cost to the State, City and the People of New York

 

It should be added, the negative impact on New York will not be limited to this one event. How many corporations seeking to invest billions in new facilities and jobs will be willing to risk entering a good-faith negotiation with New York state and local officials only to have it fall apart in a PR nightmare at the last minute?

Not only is the damage from this event potentially long-lasting, but the opponents’ hypocritical nature is also quite interesting. For example, consider the fact that Amazon’s HQ2 package paled in comparison to that of the expansive real estate development project about to open on Manhattan’s West Side known as Hudson Yards.

To attract investors to this development initiative – which will include luxury retailers, major corporate headquarters, and residential buildings (with one-bedroom apartments renting for $5,000+ a month to penthouse condos selling for over $30 million) – incentive packages have reached over $6 billion according to public records (and a study by the New School), all without the outrage bestowed upon Amazon’s HQ2. Where is the opposition to this project? Would a project like Hudson Yards happen in the future, once investors reflect upon the turmoil to which Amazon HQ2 was subjected?

Capital will flow where it is well-treated, and the Amazon executives were balancing their fiduciary duty to maximize value for their shareholders while also seeking to create long-term, multi-billion-dollar investments as a good corporate citizen.

Contrary to beliefs by opponents, New Yorkers are not $3 billion ‘richer’ due to HQ2’s failure to launch. Quite the contrary. The people of New York and particularly, the people of LIC and the surrounding areas, will never realize the potential benefit of billions of dollars additional tax dollars and increased economic activity flowing into their local economy.

One of the interesting outcomes of the HQ2 story is that it will create a controlled economic experiment of sorts. Because there were to be two new headquarters, one in LIC and one in Crystal City, Virginia, it will be fascinating to observe the changes in economic wellbeing in say, five years, between LIC and Crystal City. Particularly, it will be interesting to look at the change in tax dollars generated from 2019 to some point in the future. It’s a fair bet to say tax dollar growth in Crystal City will far outpace LIC.

 

Leveraging the Economic Advantage of Tax Credits and Incentives

 

Despite our belief that smart economic incentives are an inevitable fact of life in today’s technologically wired world and that they can present great outcomes for all involved, skepticism surrounding the checkered past of these types of arrangements is not misplaced.

Critics can point to numerous circumstances where the government didn’t get what it bargained for. The reasons for this vary, from lack of oversight, lax regulation, improper cost-benefit analysis, and sadly, also due to greed and corruption among policymakers and certain recipients.

That said, governments have an increasingly difficult time mandating certain economic behavior from companies and thus are having to find ways to entice desired behavior. This shift in the business/government balance of power is directly attributable to the proliferation of modern information technology.

In today’s wired world, organizations large and small can efficiently manage assets and employees wherever they’re best treated and effortlessly conduct business through integrated information technology.

 

Bottom line: companies no longer need to have one physical ‘home base’ but rather operations can be managed from anywhere on the globe and at any given moment.

 

Therefore, government at all levels must be smarter about working with businesses, and progressive legislative policy in the form of tax incentive packages are the best tools they have at their disposal to stimulate and encourage investment and compete in a global economy.

 

Why? Because they work.

 

Tax credits and incentives are simply a necessity in today’s economy so the real question is how can they do it best? The answer is technology and transparency.

 

Can FASB Topic 832 and Modern Tax Technology Dispel the Negativity around Tax Incentive Policy?

 

We at The OIX believe that in this pivotal moment of regulatory evolution – with the approaching implementation of FASB 832, the logical descendant of GASB 77 – government at every level has a fantastic and consequential opportunity to embrace and improve tax credit and incentive policy.

Through proper technology – coupled with a regulatory mandate to force best practices – businesses and policymakers alike can weigh the economic benefits, both direct and ancillary, which for the latter will result in legislating successful programs for the collective benefit of all its citizens and improving critical investment decisions by the former.

These new regulations and the accompanying emphasis on disclosures and reporting are critical if incentives are to remain in the Government’s tool chest. With transparency and supporting data, taxpayers, and voters will for the first time be able to formulate an informed perspective so as not to thwart a once-in-a-generation opportunity like AMZN HQ2 LIC.

Now is the time to be smarter about dealing with the reality that companies use information technology to think and expand globally. With each passing year, an ever-increasing amount of global wealth is created. And with it comes growth in economic power, while political power remains relatively static and is generally limited to the local geography.

So, when a local government and a business from afar make an agreement that promises the creation of new jobs and investment in a community:

 

– How does the government confirm that specified conditions, job creation, and investment pledges (mandated to receive the incentive and tax-advantaged treatment), actually happen?

– How do they know what’s occurring in real time?

– How do they measure the results of those new jobs and other economic impacts?

– Did those additional jobs increase or decrease taxable revenues to the jurisdiction?

– With respect to the subject at hand, how might the City and State of New York have been able to monitor what Amazon HQ2 promised to deliver and share that information with taxpayers (proponents and opponents alike), and the very administration who drove the policy?

 

The answer is quite simple: through modern technology and tax credit and incentive reporting and analytic solutions.

 

What’s next for the Tax Credits and Incentives Landscape After Amazon HQ2

 

While FASB 832 and GASB 77 were great first steps, the next logical bridge is the smart application of existing tax technology and specialized software designed to measure credits and incentives on every level. As this measurement requires transparency, the implementation of technical and reporting standards will allow companies to report compliance in real-time, which in turn will allow the government to analyze results and ensure end-to-end compliance.

 

We may be biased… but cue The OIX.

 

The OIX is a Tax Credits and Incentives Management company, which is specifically architected to address government incentives, provides a layer of technology that helps companies manage their responsibilities and compliance needs related to maximizing their tax credits and conforming with regulation.  From the other side, this technology offers the government a solution for monitoring a real timeline of deliverables and making those findings public.

 

Learn more about why the world is taking notice of The OIX.

 

References

[1] Amazon selects New York City and Northern Virginia for new headquarters; New York Needs Amazon

Credits and Incentives (C&I): Creating a Strategic Advantage

The Credits and Incentives: Creating a Strategic Advantage for Your Organization

 

The complexity and confusion surrounding credits and incentives (C&I) and tax preparation can be daunting while running a business, regardless of size. Whether you’re a small, midsize or large multinational, the number of variables that must be considered in relation to an entire organization’s tax liabilities pose a complex challenge.

A constantly changing tax landscape can impact your bottom line – most recently resulting from the 2017 Tax Cuts and Jobs Act (TCJA). Add to that a multi-state jurisdictional footprint and international activities and you then have a formula for complexity, confusion and missed opportunities.

Over the last several decades we have witnessed a tirade of progressive fiscal policy that has resulted in an explosion of economic incentives and benefits issued by all levels of governments on a global level. These economic development programs and the assets they produce are too often overlooked in the day-to-day process of managing traditional tax compliance despite the significant and material cash flow derived and/or the reduction of your company’s annual tax bill.

We are referring to credits and incentives (C&I), and you and your company have likely already considered the financial benefits as part of your investment decision-making process and the strategic decision-making process.  These assets are the byproduct of direct investment, job creation and certain enterprise behavior (through the adherence to government policy initiatives and economic development program rules and regulations).

The most typical outcome provides a dollar-for-dollar reduction that can be applied against tax liabilities owed to various levels of government (federal, state, local and international), but other benefits can include cash rebates, refunds, grants, abatements or certain government guarantees designed to promote good corporate citizenship and a win-win scenario.

 

Credits and Incentives (C&I): The Inevitability of a Growing Asset Class

 

Historically, many business leaders have thought of credits and incentives as a “nice-to-have” that was usually nothing more than incremental and marginal economic benefits – or an opportunity for local politicians to tout community development campaign promises.

However, as governments around the world have become more and more competitive in their attempts to stimulate their economies, attract the best firms, innovation and job creation to their communities, these incentives have grown to be material in every sense of the word.

For example, while some of our constituents at The OIX manage a small handful of incentives that produce several million dollars of benefits, others are managing several dozens or hundreds of these assets resulting in over $1.0 billion + of economics and direct bottom-line impact, and regardless of magnitude, often a small team consisting of just a few people are making this happen. Think about that for a second; credit and incentive professionals at some of the largest companies in the world are adding potential billions or more to their companies’ bottom line.

As more and more companies come to appreciate the scope and potential materiality of these types of assets, credit and incentive professionals will become more and more valuable to their company’s competitiveness and profitability. It is truly an exciting time to be a tax professional who understands the C&I world. And yes, we said tax planning and execution is exciting!

Of course, C&I assets are not without controversy, as evidenced by the uproar caused, most recently, by Amazon’s HQ2 location selection and the multi-billion-dollar C&I packages they have received. Opponents of C&I often decry these programs as “corporate welfare” and nothing more than handouts. To add to the contention, various economic impact studies have produced wildly different assessments of actual economic impact.

However, many of the anti-C&I studies ignore ancillary benefits – as the analysis is circumspect and ill-equipped to value the trickle-down effect, as well as to measure the long-term permanent infrastructure, quality jobs, and community development befits that these programs foster.

 

But let’s be real here… What choice do governments have when it comes to attracting top tier businesses, innovation, and jobs to their locales? 

 

The government has but one tool in its arsenal to surgically stimulate economic behavior and its outcome to enhance the quality of life within its borders.  Yes, C&I as smart fiscal policy.

 

The Effect of Credit and Incentive Policy

 

The fact is that the balance of power between economics and politics has been shifting over the past 70 years (and really since the Reformation and Renaissance) and while many factors contribute to this shift, the most prevalent is caused by the advent and deployment of real-time, global information infrastructure and information technology that allows businesses to operate on a global level and manage tax credit assets in real-time.

At the same time, the government remains local and geographic in nature and has decreasing ability to dictate economic behavior it seeks from a business. Progressive fiscal policy that results in the most beneficial outcome requires lawmakers to judiciously legislate programs that make sense and provide measurable returns to taxpayer investment.

So, the trend in C&I policy (from industry expanse to huge leaps in dollar amounts and number of programs enacted – most recently, as an example, Opportunity Zone incentives created through the 2017 TCJA) – all point to the inevitability that democratic capitalists governments really don’t have a choice but to find smarter and more efficient ways to incentivize businesses to stimulate growth.  For companies and the recipients of these assets, the need to ensure compliance with the terms and requirements that these packages offer is ever more increasing.

This is acerbated by new regulatory disclosure and reporting mandates governed by FASB Topic 832, set to take effect in 2020.  Said another way, good corporate citizenship and smart political policy goals can co-exist in a mutually beneficial environment provided that there is enough visibility to ensure that all parties are living up to their piece of the bargain. (More on this in a future OIX Blog Post.) 

Unfortunately, historically, this asset has been a “grey” area for many C&I professionals and recipients. But fortunately, through advances in information technology and dedicated asset management solutions to address the sector there also lies the key to maximize the value of C&I programs and their benefits, and of course, we’re talking about The OIX’s tax credit software

 

The Power of Credits and Incentives (C&I)

 

In our view, credit and incentives are the most powerful and effective policy tools that government has at its disposal to surgically stimulate economic behavior that it deems vital to the growth and economic activity within its borders.

Our goal at The OIX is champion smart C&I incentive policy and their use, and we deliver the technology to ensure that all parties in the ecosystem are doing their part to create the mutually beneficial economic outcomes as intended.

Through this blog, we will make the case that credits and incentives should become a strategic component of every company’s financial planning process – from acquisitions, procurement, divestitures, hiring, capital market activities, facility development, and everything and anything that is considered when running a business in today’s hyper-competitive global arena, where winning and competing on the margins is essential.

This rapidly growing asset class will continue to expand, and the companies that are best prepared to utilize and leverage policy will see higher margins and greater long-term profits.

 

Please feel free to ask us any questions – we would really love to hear from you! You can reach us at info@TheOIX.com.

Business Tax Credits: What Should I Know?

Business Tax Credits: How to Maximize Their Economic Benefits

 

Ensuring that a business achieves long-term growth takes a lot of careful strategizing. This is especially true when it comes to business tax credits and tax planning, where organizations have the opportunity to carve out substantial savings every year – and potentially even generate additional cash flow.

Especially in recent years, there has been a legislative surge in new tax benefits through economic incentive programs, called opportunity zones, geared to stimulate investment and job creation for small, midsize, and even large global companies.

This extends from the federal, state and local level here in the US, with identical dynamics on a global level throughout international jurisdictions, and now businesses are faced with a complicated and vast collection of opportunities to save – and even make – money with respect to taxable liabilities. The byproduct of this fiscal policy is known as tax credits.

The problem is that, far too often, organizations’ focus on regular management of traditional tax compliance causes them to miss opportunities – meaning tax credits that don’t get claimed, or worse, companies do not go after credits and incentives that they may be eligible for.

 

What is a Business Tax Credit?

 

Tax credits are generated through government-sponsored incentive programs that are designed to influence businesses (and individuals) to behave in a way that is beneficial to their community, local workforce, or environment.

Credits and incentives should not be confused with tax deductions; the latter enables a reduction to total taxable income base (decreasing what can be taxed by the government), whereas the former provides a dollar-for-dollar reduction in tax liability after calculating the total tax bill. If an organization properly demonstrates that they have fulfilled program requirements and the rules and regulations that govern defined benefits, then a tax credit is issued along with guidelines for redemption.

Properly taking advantage of incentive programs and the tax credits they produce isn’t easy. While it may seem simple on its face, real-world understanding and management of tax credits is quite an undertaking – no matter the size of the company. Legislative and statutory frameworks dictate how business tax credits can be earned, claimed and monetized, and a considerable amount of expertise is required to navigate these waters.

There are seemingly countless types of tax credits available to businesses, and each of them has their own unique list of preconditions, requirements, and qualifications. Not only do companies need to determine which US federal tax incentives are available and how to take advantage of them, but there are also incentive programs offered by all 50 states.

Further, city governments also provide their own tax incentives that are designed to support investment and job creation on a municipal level, endeavor to lure new businesses to relocate and/or encourage the expansion of local operations.  This same dynamic exists on a global level as there are tax incentive programs offered by just about every government around the world.

 

Tax Credit Monetization: What Types of Business Tax Credits are There?

 

There are a myriad of available tax incentive programs that support and encourage innovation and investment across just about every industry.  From pure “jobs” programs – including Enterprise Zone, Work Opportunity Tax Credits (WOTC), Research & Development, among so many others, which as policy programs target and stimulate the most innovative industries and quality jobs – tax credits and incentives are the most effective economic development tool that government has at its fingertips to promote generational prosperity, growth, and permanent infrastructure.

Generally, with respect to tax credit monetization, business tax credits fall into these categories in how they can be redeemed:

 

Non-refundable tax credits

This represents the majority of tax credits. These types of tax credits can be applied against tax liabilities on a dollar-for-dollar basis up to the total amount of tax (federal, state, international) that business owes.

Refundable Tax Credits

Upon filing a tax return (in the jurisdiction), and to the extent that the credit exceeds liabilities, the government issues a cash “refund” to the company.  

Transferable Tax Credits

Statutorily, these credits can be freely transferred/assigned/sold to another taxpayer (who has liabilities in the issuing jurisdiction) at any time, subject to the rules and regulations around the transfer, who then applies for the credit against their liabilities.

Rebates and Grants

These incentives are monetized in the form of cash receivable from the issuing agency, without the need to first file a tax return. The former is redeemed following satisfaction of qualifying guidelines, whereas the latter is received prior to investment.

Tax Abatements

Reduction of or exemption from taxes granted by a government for a specified period, usually to encourage certain activities such as investment in capital equipment, and most commonly offered to offset property tax liabilities.

Bond Guarantees

Corporate debt securities offering a secondary guarantee that interest and principal payments will be made by a governing agency should the issuer default due to reasons such as insolvency or bankruptcy.

 

Statutory, Discretionary and Negotiated Incentive Distinctions

Statutory incentives include economic benefits that are earned by right if a company meets certain thresholds or performs certain activities as defined by legislative policy and which meet qualifying guidelines. Discretionary incentives are similarly legislated but require pre-application and/or pre-approval to qualify and are completely at the governing agency’s discretion, and usually include “but for” requirements – meaning, if not “but for” the incentive the economic investment and job creation would not be undertaken.

 

Carryforward

While some tax credits can only be claimed in the year in which they were earned, others can be “carried forward” to apply against liabilities in future (tax) years.  “Carryforward” provisions typically range from 1 year to as much as 20 years, and in regard to certain incentives, credits can be carried “back” and applied again liabilities in prior years.  Attention should also be paid to amended and re-stated returns as it pertains to credits, their use, and limitations.

 

Compliance

In order to earn certain credits and incentives, companies engaging in economic activity eligible for benefits and liability offsets must adhere to the rules and regulations and follow certain guidelines with respect to (1) how an investment is targeted and maintained, and more important (2) the jobs and permanent infrastructure created as a result. Each incentive program (whether statutory, discretionary or negotiated) will have their own unique compliance requirements.

 

Maximizing the Value and Benefits of Tax Credits and Incentives

 

Owing to the diversity of tax credits and incentives and all forms of government assistance through economic development policy, how can your business maximize their value? How do you leverage, from a balance sheet and cash flow perspective, the economic benefits that may make the difference in how you compete on the margins and win?  

Knowing the ins and outs of each potential tax credit program is crucial, as it can dictate how investments are prioritized, play a significant role in forecasting cash flow and provide the (soft equity) gap that may lead to a “go” or “no go” decision.

Understanding how to get the most out of the system, however, is nearly impossible without the best technology and access to the necessary expertise. The sad truth is that a ton of companies are either overlooking eligible incentives they should be going after, but also are not properly benefiting from the credits they have earned due to the absence of modern-day tax technologies designed to maximize their value.

Collaborating with an experienced technology partner to plan and manage a sound tax management strategy is how top organizations are able to minimize their tax liabilities each year.  Investing in an enterprise solution to manage tax credits is one of the only ways to ensure that companies are navigating the system in the most lucrative way possible each year. It’s all about dumping your tax credit concerns onto someone else’s plate – putting all the hard work into the hands of an established and reliable tax credit company, such as The OIX.

With years of experience slashing clients’ tax liabilities with innovative tax credit and incentive software, The OIX offers a unique and effective solution that takes all the chaos and inefficiency out of the picture. This next-generation platform streamlines the management, reporting, forecasting, analysis, workflow, monetization and compliance processes for tax credits and incentives on a worldwide scale.

By adopting tax credit software solutions through an industry-leading tax credit company like The OIX, you can ensure that your business isn’t missing out on any lucrative tax credits – while also positioning your company for long-term growth.

What is a Tax Credit?

What is a Tax Credit?

 

The complexity and confusion surrounding tax preparation can be daunting, especially if you’re running a business. Not only are there a number of additional variables to consider when dealing with an entire organization’s taxes, but there are also a ton of missed opportunities – money-saving maneuvers that can slash thousands of dollars off a company’s total annual tax bill.

 

They’re called tax credits, and you’ve likely already heard of them: discounts to the money a business owes to the government that can be applied if certain eligibility requirements are met.

 

Tax Credits for Small Businesses

 

Tax credits are incentives that the government provides to encourage companies to behave in a way that positively impacts their workforce, environment, or the community around them. If businesses prove that they performed the requirements for each tax credit at the time they file with the Internal Revenue Service (IRS) every year, they can fill out the appropriate form and get rewarded with a lower tax bill.

 

When an organization chooses to purchase a company vehicle that’s powered by alternative energy, for example, they can claim up to $4,000 in as part of the “Alternative Motor Vehicle Credit” – which is subtracted directly from the taxes they owe for the year.

 

Are Tax Credits the Same as Tax Deductions

 

Tax credits are frequently confused with tax deductions, which don’t function in the same way. Deductions allow businesses to subtract from their total taxable income – reducing what the government will be able to tax. Meanwhile, tax credits are directly applied to the money a company owes, cutting the actual tax bill on a dollar-for-dollar basis.

 

Types of Business Tax Credits

 

There are a ton of tax credits offered by the federal government. All of these have a list of unique requirements and their own individual forms to complete in order for a business to successfully claim them.

 

And the lengthy list of national business tax credits doesn’t include the various different incentives offered by each of the 50 states, which differ from the credits that can be claimed at the federal level. On top of that, cities offer their own tax incentives to attract businesses, keep them in town, and encourage them to expand. After all, the jobs and spending that small businesses generate have a huge impact on local economies.

 

Claiming Business Tax Credits

 

Taking advantage of a business tax credit is a pretty simple process on its face. On the federal level, for instance, a firm just needs to complete the form for the specified credit. The Disabled Access Credit, as an example, is Form 8826. In addition to the specific tax credit forms, each business – in most cases – will have to fill out the General Business Credit form (Form 3800).

 

If an organization reaches the maximum limit of tax credits it can claim for a full year, it has the right to retroactively apply the overflowing credits to their tax bill from the previous year – but only if the previous year’s credits weren’t maxed out. Carrying tax credits backward like this can be huge in additional savings for countless companies. On the flip side, the excess credits can also be carried into the next tax year, which is referred to as a “carryforward.”

 

At face value, it sounds like a quick and easy process, but just one glance at any tax credit form will shatter such an illusion. With dozens upon dozens of lines to consider and fill out, combined with requests for numerous references to other documents, claiming just a single business tax credit is an arduous and complicated endeavor. Add a few more tax credits to the mix and we’ve got an absolute mess to deal with each year.

 

Why a Reliable Enterprise Solution is the Best Way to Go

 

The hard truth is that many businesses out there are overpaying on their taxes, which can often be attributed to an incomplete understanding of what tax credits their organization can legally claim combined with a lack of expertise when it comes to efficiently managing and submitting them all.

 

But who can blame them? There are federal, state and local tax credit possibilities to juggle, many of which require pre-planning to successfully claim, and each additional layer of confusion amplifies the risk of overpaying the government what it’s truly owed.

 

This is why business owners need to work smarter, not harder, and shift their tax credit worries onto an established and reliable partner – like The OIX. Organizing and efficiently seizing every single possible tax credit available requires a world-class, seasoned enterprise software provider. After years of experience saving its client organizations money with their next-generation tax credit and incentive software, The OIX has refined and perfected their unique solution.

 

The countless, variable qualifications and limits that each tax credit entails are too often left in the hands of tax professionals who can’t maximize financial benefits year after year. The OIX takes the chaos and inefficiency out of the equation by streamlining the management, reporting, forecasting, analysis, workflow, monetization and compliance processes for tax credits and incentives on a global scale. They are even equipped to fully prepare your business for the upcoming FASB regulations, which add a whole new complication to the compliance equation.

 

Partnering with a leading tax credit management expert, like The OIX, is the simplest and surest way to ensure that a business is doing their taxes efficiently – and generating additional savings that could otherwise be missed out on.