Leveraging opportunities to reduce corporate income tax is essential to tax planning. Oftentimes, executives are familiar with the “traditional” year-end tax planning moves, which can produce limited savings. However, many businesses don’t take time to regularly review business activities to determine if additional tax savings can be claimed.
There are several federal tax incentive opportunities available to Chicago companies with qualifying business activities. These incentives cover a variety of functions, including hiring, benefit plans, employees, health insurance, infrastructure investments, and research and innovation, to name a few. Many companies are unfamiliar with the various federal incentive programs, qualification criteria, and how to receive the tax benefit. While each company is different, it’s important to review the incentives to determine available opportunities.
Our tax team works with companies in Chicago and across Illinois to identify tax savings opportunities through these programs. We help business owners and executives identify incentive opportunities, determine qualifications, and assist with the application process when needed. Concurrently, we work with clients to review planned business activities and analyze potential tax saving opportunities through these programs. In other words, Selden Fox transforms your business activities into tax saving opportunities. Below is a partial list of tax incentive opportunities available.
Work Opportunity Tax Credit (WOTC)
The WOTC is a tax credit available to employers that hire individuals from certain groups that have traditionally faced significant barriers to employment. There are 10 categories of WOTC-eligible workers, including unemployed and disabled veterans, SNAP recipients, summer youth employees living in Empowerment Zones, and long-term family assistance recipients. The filing and documentation process is complex as it requires companies to receive certification from their state workforce agency that the candidate(s) qualifies.
The credit amount is calculated based on wages paid. For most target groups, the maximum wage allowed for WOTC purposes is $6,000. Since credit is limited to 40% of wages, most companies can receive $2,400 per employee. The WOTC is limited to the amount of the business income tax liability or social security taxes owed, with carry-back and carry-forward options available.
Research & Development Tax Credit (R&D Tax Credit)
Innovation is imperative to the success of a company. The R&D tax credit is available to qualified companies that conduct qualifying research and development innovation in the United States. The misconception is that this credit is only available to companies with formal research labs. Still, the truth is companies from various industries with activities related to applied sciences can qualify. Companies that develop or design new products and/or processes, enhance existing products or develop and/or improve upon existing prototypes typically qualify.
The amount of the credit is different for each company as it is related to the amount of qualifying R&D expenditures. Generally, all W-2 wages for those engaged in qualified research activities, as well as outside contractors and suppliers, qualify for the credit. To claim the credit, a company must undergo an R&D tax credit study which includes passing the four-part test and collecting proper documentation to support qualifying expenses. The good news is the credit can result in thousands in tax savings.
Section 179d Deduction
The 179d deduction is available to building owners for installing qualifying energy-efficient systems. Tenants can also claim the deduction if they make eligible construction expenditures. As a result, companies that own or lease retail, commercial office, industrial building space, or warehouses can claim the credit when qualifying improvements are made.
A deduction of $1.80 per square foot is available to building owners that install efficient interior lighting, heating, cooling, ventilation, or hot water systems, that reduce the total power cost by 50% or more. There is also a deduction of $0.60 per square foot available to owners in which lighting, HVAC, and other upgrades meeting certain quality targets.
Disabled Access Credit
This incentive encourages businesses to make their office, production facility, or work site accessible to individuals with disabilities. Examples of accessibility changes include installing ramps at entrances, storage, and display units, and upgrading restrooms. The credit amount varies between companies, but it covers up to 50% of qualifying expenditures with a maximum of $5,000 (assuming $10,000 in qualifying expenditures).
Credit for Paid Family/Medical Leave
This credit is designed to reward companies that offer employees leave for qualifying medical and family events, which can include childbirth, adoption or medical emergencies. To qualify for the credit, a company must have a written policy that provides two weeks (annually) of paid leave for full-time employees and must not be less than 50% of normal wages. Examples of qualifying leave activities include birth or adoption of a child, care for employee’s spouse, child or parent, or time needed to manage a serious health condition (that prevents an employee from doing their job).
The amount of the credit is a percentage of the wages paid while on leave for up to 12 weeks per year. The minimum amount of the credit is 12.5% and increases by 0.25% for each percentage point by which the amount paid to the employee exceeds 50%. Note the maximum limit of the credit is 25% of wages paid.
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The tax incentive opportunities outlined above are just a summary of the most common incentives available, but there are various others available. The opportunity to take advantage of one of these programs can result in extra savings for your business. It’s important to conduct a comprehensive review to determine where untapped savings may exist. It is important to partner with a qualified tax provider to help assess, plan, apply, and manage the incentive claiming process. Don’t lose out on the opportunity to claim these incentives. For additional information call us at 630.954.1400 or click here to contact us.
