WOTC – What Is It And Who Qualifies?

What is WOTC?

WOTC – Work Opportunity Tax Credit – is a Federal tax credit created by the Small Business Job Protection Act of 1996 and the Welfare-to-Work Tax Credit of 1996.  This credit is available to employers who hire and retain from target groups. Employers claim about $1 billion in tax credits each year under the WOTC program. There is no limit on the number of individuals an employer can hire to qualify to claim the tax credit, and there are a few simple steps to follow to apply for WOTC.

Is WOTC the Only Program We Review?

WOTC is a great program to start out with.  But a business owner will benefit from looking at all Employer Based Tax Incentives.  The most notable two programs in addition to WOTC are Section 41 R&D Tax Credit, and the Startup Tax Credits.

How Do You Know If WOTC Is Already Being Taken Advantage Of?

Many companies think their payroll company or CPA are already taking care of this for them.  Each month we work with over a thousand new companies, from our experience the vast majority of companies are either not taking these types of tax incentives at all, or they are taking only small fractions of what is available.

If you are not completing a form 8850 with each and every new person you consider for employment, you are not taking advantage of this Tax Credit.   This process is more operational then it is accounting based.  Because most CPA’s and even payroll companies are not involved in your interviewing and candidate process it’s rare that this is being taken advantage of.

What Types of Employees Qualify?

From the 1940’s through the 1990’s:
Although many of these programs started out as programs specifically designed for Veterans, they were expanded in the 80’s and 90’s to include broader groups such as TANF Recipients, SNAP (Food Stamp) Recipients, Residents living in Empowerment Zones or Rural Renewal Counties), Employees receiving certain types of vocation training, Ex-Felons, Supplemental Security Income Recipients, Summer Youth Employees, and Seasonal Workers.

Into the 2000’s….
The Financial Meltdown in the mid 2000’s brought about a renewed focus on Job Creation.  With this we saw massive expansion of Federal Tax Incentives for creating, and maintaining jobs.  This was done through the Small Business Jobs Act, The American Recovery and Reinvestment Act, Numerous Job Creation and Protection Acts, and most notable the PATH Act signed by President Obama for effective changes in 2016 through 2022.

The pattern in the last decade is that with the passing of each Act, more and more companies are eligible for Employee based Tax Incentives that broaden not only WOTC itself, but hundreds of programs that surround it.

Virtually any business can now benefit from Employer Based Tax Incentives because even candidates that don’t qualify for WOTC often qualify for other tax incentives.

Additionally, in most cases you can take variations of these tax incentives for your existing employees.

The Workers Opportunity Tax Credit, itself, may only be taken on new employees that are pre qualified for WOTC before they begin employment.  Our system works to help ensure compliance and promoting the screening process prior to this step so that you receive every possible credit you are entitled to.

Our system automatically identifies which programs are available for you current employees.  These credits often match or even exceed the amount of tax credits that can be found under the WOTC program.  These include certain geographic based incentives, retroactive credits, Empowerment Zone, Indian Employer Tax Credit, TICA Tip Tax Credit, R&D Tax Credit, Employment Credits from IRC Section 41, and Startup Tax Credits.

Regardless of Any Individual Candidate or Employee

Virtually All Employers in These Industries Qualify for Employer Based Tax Incentives:

  • Manufacturers
  • Software Companies
  • Producers of Products
  • Architectural / Engineering / Design Groups
  • Pharmaceutical Companies
  • Labs
  • Startup Companies
  • Companies Performing Technical Functions

How are the Tax Credits Calculated?

Employers for WOTC candidates generally can 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. Employers will earn 25% if the employee works at least 120 hours and 40% if the employee works at least 400 hours. The average benefit per employee is $2,400.00.  The other aforementioned Tax Incentives have their own specific calculation methods, which can be found by running our App.

Does YOUR Company Qualify for WOTC?

The only way to know is by running the app with your company’s information. Call for a test drive and find out. We confirm if:

  1. You are utilizing the credit to it’s fullest potential
  2. Could you receive more tax incentives for less work

In almost every case our fee will be dramatically offset by the amount of increased tax incentive and decreased workload to the client.

Book a discovery call using our app and remind them.  The worst case is you’ll find out you’re already taking full advantage and can rest more assuredly in your existing process.

To Your Prosperity!

Scott Scholz & Associates  .  425-829-4110 .  scott@ssz1.com

9 out of 10 Commercial Property Investors are Overpaying on Income Taxes

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Year after year, the Federal Government has continued to incentivize those who invest in Commercial Property. The IRS has established guidelines that, if ignored, cause commercial real estate investors to pay more in taxes than they should.

What guidelines are being ignored by Commercial Property Investors?

Those revolving around Accelerated Depreciation; known in the taxation world as Property Cost Segregation.

Ramifications of Improper Depreciation Allocation

Most commercial property investors do not truly understand the substantial benefits of accelerated depreciation. This is evidenced by analysis of thousands of depreciation schedules over the years that show less than 10% of investors are properly depreciating their properties. The most common misconception is, “I am going to get this money anyway”. Is this a true or false statement?

Let’s investigate…

  1. Capital Gains vs Ordinary Income Rates
    Although the mechanics of these calculations are not always as simplistic as we will be making it for this example, the short response is – increased depreciation leads to paying taxes at the capital gains rate as opposed to the ordinary income rate. Since capital gains rates are likely much lower than the Investor’s income tax rate, they would benefit from accelerated depreciation.
  2. Time Value of Money
    Simply put, your dollar is worth more today than it will be in the future. A tax dollar saved today therefore is worth more than a tax dollar saved in the future. Why lock up a tax savings in your property for 27-39 years when you can receive it today?
  3. Catch-Up Depreciation
    If you have not completed a Cost Segregation study on your property that you have held for a period of time, did you know that you can capture your entire missed benefit immediately? The IRS allows you to complete a 481 adjustment thus enabling you to catch up all the missed accelerated depreciation into the current tax year. This provision alone could save you hundreds of thousands immediately!
  4. The Power of Cash in hand
    You are a real estate “investor”. This means you understand the investing power of having funds in your hand today. Cash today [in the form of tax savings] enables you to invest in additional properties. The benefits of this are exponential and allow continued growth of your investment portfolio.

Correct allocation of real estate depreciation is essential for Commercial Property Investors to effectively manage their tax situation. Are you one of the 90% who are missing out on opportunities that 10% of your competitors are capturing?

For a free analysis of your Depreciation Schedules, please send an email to  scott@scottscholz.com

 

To Your Prosperity!

Scott Scholz & Associates  .  425-829-4110 .  scott@scottscholz.com

R&D Tax Credit Study Overview

The Manufacturing Incentives benefit is a Federal program designed for Companies that perform Manufacturing in the U.S. This program is listed under Section 41 or the IRC (Internal Revenue Code) and continues to be amended on an annual basis as the U.S. Manufacturing landscape continues to evolve. This is an engineered based program that focuses on a company’s operations and processes in order to determine their qualification for incentives. The Manufacturing Incentives benefit provides an avenue to receive ‘tax money’ back from prior years while also reducing current taxable income on a dollar-for-dollar basis.

Program History

The Research & Development Tax Credit was originally enacted as a Federal Tax Program in 1981 and was designed to encourage American investment in innovation. In 2004, tax regulation changes significantly expanded the credit opportunity. Today, the credit is accessible to many small and medium sized companies whose activities include design, manufacturing and process improvements.

Who Qualifies for R&D Tax Credits?

Who and what qualifies as research and development (R&D) is much broader than most realize. Activities and costs related with developing or improving a product and/or process often qualify for R&D tax credits. Furthermore, enginnering, design, testing, and programming are now included as Qualified Research Activities (QRE). Industries that most commonly qualify are:

      • Manufacturing
      • Fabrication
      • Engineering
      • Software Developers
      • Chemical
      • Tool & Die
      • Machine Shops
      • Plastics Manufacturers
      • Pharmaceutical
      • Biotechnology
      • Food Sciences/Manufacturers

What are the Benefits of a R&D Tax Credit Study?

The benefits of having an R&D Tax Credit Study performed would be:

    • Dollar for dollar credit against taxes owed or previously paid
    • Carry forward credit for future profitable years
    • Immediate increase in company cash flow
    • Credit average is over $25,000 per $1,000,000 in total company payroll

Methodology

We utilize a team of highly qualified professionals including IP attorneys with engineering backgrounds and adheres to the Comprehensive Project by Project Approach methodology as required by the IRS. By following this methodology, we qualify every applicable employee, activity, hour spent and corresponding wage paid in order to maximize the incentive for our client. We strictly adhere to the applicable sections of the code and provide first-in-class documentation to substantiate our findings.

Getting Started

An initial consultation is done over the phone with one of our R&D Specialists to identify potential Qualified Research Expenditures (QRE). If qualifications are identified, GMG will collect an authorization to begin working on the client’s behalf. No fee is charged until credits are identified and utilization is verified with the client’s accounting representation.

The initial consultation is a simple and quick process. Contact us to schedule your consultation!

– To Your Prosperity!

Scott Scholz & Associates  .  425-829-4110 .  scott@ssz1.com

Taxes Shock Business Owners in 2015

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A record number of business owners are finding themselves in the uncomfortable position of having to pay higher tax bills this year than they anticipated. This causes them to ask:

Why did I end up owing this much money?

There are several factors responsible for companies owing more to Uncle Sam.

  1. Unexpected profitability.
    Since the Great Recession, some companies have prospered, but more have struggled. They responded by reducing quarterly tax payments or, in some cases, dropping them completely. As business has improved in the last few years, they haven’t resumed the quarterly tax payments.
  2. Better than anticipated recovery.
    As the economy has improved over the past several quarters and income has begun to flow again, businesses have been forced to make capital investments that were postponed during the recession and were now overdue. As a result, although the business has been more profitable, that profitability wasn’t “felt” by the business owner. Not all investments may be written off in the current year. Even though the bank account may not have recovered, the P&L sheets have. In addition, the IRS considers many such cases to be profitable and out of AMT.
  3. Tax breaks have disappeared.
    Many businesses have lost the major tax breaks they enjoyed and counted on, which has let to an unexpected increase in their tax liabilities.
  4. Increasing tax rates.
    The Personal Limit has increased to 40% and Capital Gains rates have increased from 15% to 25%.

Why didn’t my CPA warn me about this?

Many business owners have responded to these surprises by blaming their CPA, saying:

  • Did my CPA let me down?
  • Why didn’t they prepare me for this?

But the faithful CPA only knows, and can work with, the information the business owner provides them. In most cases, business owners don’t do their CPA any favors. They do not take the time required to discuss overall tax strategy with their CPA.

CPA’s have countless stories of not being appraised by a business owner who acquired or renovated a building because it made good business sense and was good for the bottom line, but gave no consideration to how it might impact his tax strategy. Also, it rarely crosses a business owner’s mind to review how a decision made in the middle of the summer could impact him next April.

Is there anything I can do about this?

After complaining about the CPA and the government, biting the bullet and making the payment, while waiting for the next tax bill to arrive, there is recourse. Just because tax has been paid, the numbers are not necessarily set in stone.

There are over $200 Billion in Federal Tax Incentives allocated to small and mid-sized businesses to help offset your tax liability.

We have a simple app to help business owners to check in about 90 seconds to see if you qualify for any Federal programs. You can see the kinds of benefits we’ve helped different business owners across different industries realize in these case studies. Don’t unnecessarily neglect or mistakenly disqualify yourself without finding out if you qualify, too. Call 425-829-4110 today for a free, no obligation, 90-second conversation.

To Your Prosperity!

Scott Scholz & Associates  .  425-829-4110 .  scott@ssz1.com

More Customer Complaints than Ever Before

Tax

After tax filing season earlier this year, we received more customer complaints in one day than we’ve ever seen in a single day in over 10 years of business!

The good news is, they weren’t our customers complaining about us. They were customers complaining to us about their tax situations.

Given we’re at the deadline for paying 3rd quarter tax payments in a year that’s been better than anticipated for many, those familiar refrains are being raised again. This makes it prudent to revisit why this is happening.

Beginning in 2014 and continuing in 2015, business has been on an upswing that has strengthened each quarter. As income has increased, businesses have made capital investments that have sometimes been years overdue. Such investment has caused business owners to not really ‘feel’ or enjoy the fact they were more profitable. Compound the problem with the fact that 1) not all investments may be written off in the current year, and 2) even if the bank account hasn’t recovered, the P&L sheets have, and additionally, the IRS considers many to be profitable and out of AMT… even if bank accounts don’t reflect the same. Compound this further with Personal Tax limits increasing to 40% and Capital Gains increasing from 14% to 25%!

Here are just a few of the horror stories we heard:

  • A client found out in January they underpaid all last year. Their CPA had them pay in an additional $200K in the last three months to “catch up” only to find out at the filing deadline that they still underpaid by an additional $140K, that they were asked to come up with yesterday!
  • A car dealership that paid in all year only to find out that they owe an additional $600K that they simply don’t have in their cash flow.
  • A manufacturer that didn’t pay in all last year (thinking they were going to be in AMT) only to find out that they owe $1.2M!
    An R&D client contacted us to ask if we could perform a Cost Segregation study that day or the Owner was going to owe $210K yesterday! (I’m guessing they are now wishing that they had moved on the cost segregation study months ago when we first proposed it.)

This is just a sample of clients who were frantically looking for solutions they needed yesterday.

These are clients that we spoke to throughout the last 12 months and that for one reason or another held back (probably not thinking they would have liability) only to receive the SHOCK OF A LIFETIME.

How Could This Happen?

One of the biggest questions we are get is how could this happen? Did the CPA let these clients down? How did they not prepare their clients for this?

The reality is, a CPA only knows the information a client gives them and most of us business owners don’t do their CPAs any favors. Business owners know this to be true, but just aren’t willing to admit it.

Here are a few comments that we heard from CPAs to demonstrate the point:
“Oh, did they buy another building?” (This was a $2M building purchase that the client never told the CPA about!)
“Why are your numbers higher than ours?” (We had to explain to the CPA that the client spent an additional $300K in renovations that the CPA was unaware of.)

Most business owners are guilty of… running their business. As business owners, we make decisions today that are good for our company and good for our bottom line, often with little to no regard of how it affects our tax situation (and it usually wouldn’t cross our minds to call our CPA in the middle of the summer to review something for next April).

What Does This Mean Now?

You have to understand, business owners are angry! They aren’t quite sure who they are angry at. They could be:

  • Unfairly blaming their CPA
  • Upset with themselves for not looking into Specialized Tax Incentives more
  • Just angry at the government in general

Regardless of your personal stance on taxation of these “rich” business owners, most will tell you they feel they worked hard all year for their money, only to lose all their profits to a required tax payment.

In addition to feeling angry, you are also going to find many business owners are worried. They just got the news that they have huge tax liabilities, and although a small handful have the capital to make these liability payments, most do not.

What to do?

I spoke personally to a business owner this morning at 7am who told me he didn’t get a wink of sleep last night. He is so frustrated by the news they got yesterday, it changes all of his plans he had for the money, virtually eliminating plans for needed growth and expansion.

The problems created on tax day could linger on for months.

Relief might be found in the benefits achieved with Specialized Tax Incentives. Now may be the perfect time to explore that opportunity.

For a free, no risk, no obligation discussion of the possibilities, call 425-829-4110.

 

To Your Prosperity!
Scott Scholz & Associates . 425-829-4110 . scott@ssz1.com