Don't Miss Out: Tax Credits for Small- to Mid-sized Business.

AuthorScipio, Andre

although more than $60 billion in tax credits arc awarded annually, a substantial amount of those credits and incentives go unclaimed, especially for medium and small businesses. While recent federal legislative changes have made an impact on the importance of tax credits, the Tax Cuts and Jobs Act of 2017 did not make any direct changes to federal tax credits. However, there are several provisions in TCJA that made tax credits more attractive, including:

* Reduction in marginal tax rate: With the reduction in corporate income tax rates from 35 percent to 21 percent, a tax credit is now more valuable than before.

* Limitation on utilization of Net Operating Loss (NOL) deduction: For losses incurred after 2017, an NOL only will be allowed to offset 80 percent of taxable income. As a result, taxpayers emerging from losses now will pay income tax prior to exhausting NOL carryovers, which will provide motivation to find tax credits to reduce tax liability.

* Elimination of corporate Alternative Minimum Tax (AMT): TCJA eliminates the AMT tax for corporations, which will allow taxpayers formerly in AMT to realize benefit from the credit in the year that the credit is generated.

* Capitalization and amortization of research expenditures incurred after 2021: The TCJA requires that research and development expenditures paid or incurred after 2021 be capitalized and amortized over a five-year period. Accelerating research expenditures prior to 2022 would yield an increased eligibility for the R&D tax credit.

* Pass-through entity provisions:

Individual taxpayers will benefit from a higher AMT tax exemption, which will allow more tax credit to be utilized. Similarly, the reduction in individual income tax rates and the elimination of many individual deductions will make tax credits more valuable in a partner's or shareholder's overall tax planning.

Many tax credits and incentives go unclaimed by qualifying small and medium businesses because:

* Many business owners are too busy with the day-to-day operations of their establishments and fail to notice that they are missing out on numerous tax credits they are qualified to receive.

* The tax credit environment is constantly changing due to amended federal and state rules, codes, regulations and case laws. Many small-business owners lack the technical expertise to keep up with constant program changes and the knowledge that can help maximize tax credits for their establishments.

* Some businesses owners...

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