As a tax or financial advisor, your mission is to aid clients on their journeys to optimal financial well-being. For your business clients, proper tax planning forms an integral part of an overall financial strategy designed to maximize profitability. However, frequent changes in state and federal tax law can make it difficult to maintain a clear understanding of the applicable tax incentives and strategies that will enable you to reduce your business clients’ tax burdens.
In light of the sweeping changes brought about by the Tax Cuts and Jobs Act—the momentous tax reform law enacted in December 2017—now is the time for tax and financial professionals to reevaluate the savings opportunities available to businesses. Here are seven important—and often overlooked—steps to take in order to help your business clients maximize their tax savings:
- Determine whether your client has designed, constructed, or installed energy-efficient building measures.
The §179D deduction, which was recently renewed for tax year 2017 by the Bipartisan Budget Act of 2018, offers businesses that own their commercial buildings tax savings of up to $1.80 per square foot for qualifying energy efficiency measures, such as upgrades to lighting, HVAC systems, or the building envelope. This deduction is also available to primary designers, including architects, engineers, or contractors, of energy-efficient measures in government buildings. Although this popular incentive has not yet been extended for 2018 or subsequent years, businesses that completed qualifying projects in 2017 may claim significant tax savings through the §179D deduction.
- Consider a cost segregation study.
Another powerful way for commercial building owners to save on taxes is through the IRS-approved strategy of cost segregation, which yields accelerated depreciation deductions by simply reclassifying certain property assets. Generally, real property is depreciated over a period of 39 years, while personal property is depreciated over five, seven, or fifteen years. Therefore, taxpayers can reap the benefits of depreciation deductions more quickly with personal property assets.
A cost segregation study—which is typically performed by a qualified third party with engineering experience—divides a piece of real property into personal property assets. This enables the building owners to claim accelerated depreciation deductions, which reduces the owner’s tax burden and boosts cash flow.
- Review project records to determine whether the business qualifies for the Research and Development (R&D) Tax Credit.
The R&D Tax Credit—which was made a permanent part of the tax code by the PATH Act of 2015—is one of the most lucrative tax incentives for businesses. However, it is often overlooked due to the mistaken assumption that it is only available to businesses involved in high-tech or scientific research. In reality, this credit applies to a vast range of activities conducted by businesses in numerous different industries. Examples of industries that may benefit from the R&D Credit range from architecture and engineering to manufacturing and the military/defense industry.
The R&D Credit has entered an era of expanded usefulness for many businesses since the Tax Cuts and Jobs Act repealed the corporate alternative minimum tax (AMT). The AMT required businesses to pay taxes at a rate of at least 20 percent, regardless of credits or deductions for which they qualified. Businesses may now take full advantage of the R&D Credit and other incentives without having to worry about this much-maligned limitation. Therefore, now is a better time than ever to review your clients’ project records—regardless of their industry—and determine whether this valuable incentive may be available to them at the federal and/or state level.
- Maximize bonus depreciation for business property.
Bonus depreciation allows taxpayers to immediately deduct a certain percentage of the purchase price of business property, and then depreciate the remainder of the cost over the asset’s useful life. Through 2022, the Tax Cuts and Jobs Act has permitted businesses to deduct 100 percent of the cost during the property’s first year in service. Tax and financial advisors should ensure that their business clients take advantage of this expanded bonus depreciation in order to seize more substantial and immediate tax savings.
- Assess the client’s hiring practices.
Another incentive that is often overlooked by businesses is the Work Opportunity Tax Credit (WOTC), which allows employers to seize tax savings of up to $9,600 for each qualifying employee hired from a target group. Target groups include certain veterans, summer youth employees, and recipients of food stamps and other forms of government assistance. While claiming WOTC requires strict observance of deadlines (initial paperwork must be filed with the state workforce agency within 28 days of a qualifying hire’s start date), this widely beneficial incentive offers a powerful way for businesses to offset the costs of growing their workforces.
- Review sales tax records for overpayments and seek a refund, if necessary.
State and local sales tax rates change frequently and vary from jurisdiction to jurisdiction, making it easy for business taxpayers to become confused and pay the incorrect amounts. This is a particularly common problem among businesses that sell goods out of state. Fortunately, when businesses pay more in sales taxes than necessary, they can avoid unnecessary losses by identifying their overpayments and claiming a refund. If your business clients are subject to sales taxes, be sure to review their sales transactions and tax records.
- Leverage the expertise of other tax professionals.
Due to the changing nature of tax law, the best way to ensure that you are seizing all possible savings opportunities for your clients is to partner with other professionals who make it their business to keep abreast of the latest tax news. For example, the tax experts at Capital Review Group (CRG) stay up to date on new laws and IRS regulations affecting businesses. We strive to build collaborative relationships with CPAs, CFPs, CFOs, attorneys, and other tax and financial professionals, providing advisory support as we help them maximize savings for clients.
Wondering whether you are taking all steps necessary to minimize your business clients’ tax burdens? Find out with a pro bono analysis from CRG! Contact us online today or by calling 877-666-5539.