Experts share 4 tips to help take advantage of tax credits this season
straight to your inbox
Tax season can be a stressful time for even the most established businesses. Ever-changing laws and numerous deadlines can contribute to a chaotic season. However, with the right preparation, this seemingly overwhelming process can feel significantly less hectic.
Equipping yourself with knowledge about tax credits and the latest technological advancements can help you face the tax season with confidence. However, to benefit from tax credits, you first need to understand which credits are available, if you qualify for them, and understand how to find the best accountant for your tax needs.
To give you further insight on this upcoming tax season, we spoke with tax experts from Gusto, Yogi CPA, and Accelerate Tax in a webinar, ‘Unleashing the power of tax credits and other strategies for tax season.”
Short on time? Check out some of the key takeaways below:
What is a tax credit?
Before your business can benefit from tax credits, it’s helpful to understand what they are and their benefits. “Tax credits are credits that reduce your tax bill on a dollar-for-dollar basis. In many ways, they are more beneficial than tax deductions, which are reductions to your net income and thereby calculated with a percentage based on your tax record rather than a dollar-for-dollar reduction. The most important thing for you to know about tax credits is whether they are refundable or non-refundable.”- says Zunie Nguyen, founder and CEO of Yogi CPA
While both refundable and non-refundable tax credits lower your tax bill, refundable credits can bring your tax bill down to $0 and offer a refund for the remaining credit. This is in contrast to non-refundable credits, which will only apply to your tax liability.
To receive your tax credits, it’s essential to understand the following relevant deadlines:
- January 31st - 1099s and W2s sent out
- March 15th - Taxes due for partnerships, multi-member LLCs, and S corps
- April 15th - Taxes due for C corps and individual filings (extended to 18th/19th for 2023)
- September 15th - Taxes due for extended partnerships and S corp returns
Tip # 1: Stay up to date with the latest tax changes
With tax rules changing from year to year, it’s crucial that both businesses and accountants stay up to date with the latest policies to get the most out of your savings. The IRS is a reliable source for all policy updates.
Lean on the IRS
The technical guidance that the IRS provides to small business owners is unmatched. Although challenging to wade through, you can visit the IRS website, sign up for alerts, and look at the specific legislation or tax codes that apply to your business.
“The IRS is the source of all truth. It tends to be a little dry, to put it mildly, and hard to wade through, but it can be helpful at times to go to the actual source.” - Steven Cheng, CEO, Accelerate Tax
Accountants can help small business owners stay informed by translating technical guidance and providing updates through newsletters or other forms of communication. Business owners can also stay informed by utilizing technology partners like Gusto, which provides updates on tax changes that impact payroll, benefits, and other financial aspects, as well as Ramp’s automated accounting platform that keeps business owners in the loop. You could also utilize popular accounting software like QuickBooks, Xero, Sage Intacct, or NetSuite.
“Awareness is key for both accountants and small business owners. I think we’ve seen more changes to the tax law in the last three years than the founding of our country.” - Will Lopez, CPA and head of Gusto’s mission
Tip #2: Get familiar with popular tax credits & changes
Familiarize yourself with popular tax credits that can be advantageous for business owners.
- Employee Retention Credit: With the ERC, businesses can claim up to $26,000 per W-2 employee. It’s specifically aimed at businesses that recently experienced a significant reduction in revenue, were affected by government shutdowns, or started a business after Feb 15, 2020.
“The ERC was passed in the CARES Act along with the PPP (Paycheck Protection Program), but it’s quite different from the PPP in that it’s not a loan. It is a tax credit, and it’s structured as a refund on your payroll taxes and certain employer contributions on healthcare expenses.”-Steven Cheng
- R&D Credit: Businesses can also take advantage of a tax credit for research and development, also known as the R&D credit. This credit also doubles as a cash incentive for U.S businesses to invest in innovation, as they’re encouraged to conduct qualified R&D activities such as research into processes, products, tech, and innovation.
Businesses can use this tax credit to offset payroll taxes by up to $250,000, and under the Inflation Reduction Act, this number increases to $500,000. Pre-revenue startups can also benefit from the R&D credit. If a business has under $5 million in gross receipts in the past year and less than five years of generating gross receipts, they can offset payroll taxes for up to five years. Profitable companies can look back at all open tax years to claim potential tax savings.
“What people don’t know is back in 2019, something like $60 billion out of the $92 billion R&D tax credits available went unclaimed. So there’s just a tremendous amount of money within R&D that just sits there…like free money just roaming around out there.” - Will Lopez
Tip #3: Choose a qualified accountant
It’s crucial to ask the right questions to find the best accountant for your needs.
“Ask ‘what kind of services do you provide?’ And if they don’t touch a variety of things like taxes, financial stuff, people stuff, people operations, things of that sort like a good cascading list of services, then you may want to reconsider that individual and say, “Well, it sounds like you’re too specialized and I’m looking for something more broad.” - Will Lopez
The right accountant isn’t necessarily the one with the most specialized skills. Businesses need an accountant whose strengths lie in taxes, financial advisory, people advisory, and business ownership. In addition, your accountant needs to align with the future of your business.
“What are your goals? I think behind every business owner is a personal goal. What you’re trying to achieve with having this business, if you’re creating a legacy, providing for your employees, your family.” - Zunie Nguyen
Tip #4: Automate your admin process
Companies’ biggest roadblock during tax season is failing to have their documentation in order. Information such as P&L statements, previous payroll taxes paid, and a detailed breakdown of each pay period can be difficult to retrieve without a cloud-based accounting platform.
“Any chance you can get to automate a good portion of your administrative process in order to keep things streamlined, the better. You don’t have to live in the stone ages in one area of your business and then in the modern days in another area. You want to cascade modernization across your entire business and look at certain processes that your company has in order to implement the solutions that make sense and keep things above board, streamlined, and integrated.” - Will Lopez
Automating your admin process can help ensure these records are organized and easily retrievable.
By staying informed, understanding popular credits, selecting the right accountant, and automating your admin process, you’ll help set yourself up for a successful season.
- Ardius, a Gusto Company, provides R&D tax credit services. Find out your free estimate.
- Accelerate Tax specializes in helping businesses maximize their refund through the Employee Retention Credit. Businesses that retained their employees during the worst of the pandemic may be eligible to receive up to $26,000 per employee. Claim your refund today.