Why Tax Credits?
If you’re a business owner and you’re not taking advantage of tax credits, you are leaving money on the table. Issuing tax credits is the government’s way of rewarding businesses for creating jobs and boosting the local economy. There are over 90 tax credits available in the US. In the state of Georgia, there are certain areas that have been designated for businesses to take advantage of state tax credits. For example, if your business is located near a military base, in an Opportunity Zone, in a Less Developed Census Track (LDCT), or a Tier 1 county, your business could be eligible for significant job tax credits.
The three more commonly used and powerful tax credits are the Opportunity Zone Tax Credit, the Work Opportunity Tax Credit, and the Research and Development Tax Credit.
Opportunity Zone Job Tax Credit
Job tax credits were designed to help decrease the unemployment rate and increase local economies. The government allows specific businesses in certain designated areas to take advantage of significant job tax credits. Companies in the following industries are eligible:
- Research 7 Development
- Warehousing & Distribution
Companies can receive up to $4,000 per full time employee as a credit towards their state corporate income and in some cases withholding taxes.
Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit is a federally funded tax credit that offsets federal tax liability. When companies hire qualified individuals that are Veterans, Ex-Felons, receive SNAPS, TANF, live in Rural Renewal counties, Empowerment Zones, individuals that receive Supplemental Security Income or individuals that are summer youth employees that live in an empowerment zones, then they can apply for the Work Opportunity Tax Credit.
All businesses qualify for this tax credit credit no matter the industry type or business size and this tax credit can be carried over for up to 15 years. Companies that take advantage of this tax credit can expect from $1,200 to $9,600 per employee depending on the type of employee (Veteran, SNAP or TANF recipient, Ex-Felon, etc.).
Research and Development Tax Credit
The Research and Development Tax Credit (R&D) can apply to any company from a startup to a Fortune 500 that increases its qualified research spending. The R&D tax credit is calculated as 10% of the additional research expense over the “base amount” of gross receipts. One limitation to this credit is that the credit cannot be more than half of the business’ net income tax liability after all other credits have been applied in one year. Since the PATH ACT of 2015, many more small and medium sized businesses are taking advantage of this tax credit.