By Jack M. Germain
Apr 15, 2021 4:00 AM PT
The ominous looming deadline for filing 2020 federal income tax returns has been extended from April 15 to Monday, May 17, 2021.
If your paperwork is still in the “pulling it all together phase,” our conversation with a tax expert might provide you with a few tips to save money, especially if you are an entrepreneur working in research and development.
This year’s revised federal tax code plus new Covid-19 initiatives provide additional incentives for startup companies, as well as small and medium-sized businesses. If you received a Paycheck Protection Program (PPP) loan, you may qualify to have that indebtedness forgiven; and other tax incentives this year provide new deductions to lower your tax bill.
Gig workers and those who are self-employed need to keep up on the latest money-saving incentives in this year’s tax filing process. Be sure not to overlook any tax breaks to which you may be entitled when making calculations this season.
Please consult your tax advisor about your specific tax situation.
Your situation might qualify you for PPP, R&D tax credits, and other credits that many people are not aware of but could use. Even better is the expectation over the next few months of more tax-saving benefits for certain businesses that will pass down to employees.
“It can be pretty significant in helping businesses claim employee retention tax credits that were as big or bigger for certain industries,” Brent Johnson, cofounder and CEO of Clarus R+D, told the E-Commerce Times.
Federal Tax Overview
Historically, incentive programs are part of an overall tax plan, but in the past, they have only been really available to very large corporate taxpayers. That situation has been gradually changing.
Fairly significant rule changes took place, and over the last year with Covid-19, numerous programs came out of Congress that squarely are in that realm of these tax help programs. Clarus R+D helps businesses understand how to participate in these programs to get as much out of them as they can, according to Johnson.
For instance, one of the lesser-known programs in conjunction with the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSA) of 2021 provide assistance to workers and their families.
But, as part of the Consolidated Appropriations Act, the benefits came out at the end of the year. The PPP program is an employee retention tax credit program. It offers employers this year an opportunity to look back into 2020 to get tax credits for some of their employees.
Johnson sees that as a significant development at the end of the year in the last round of stimulus legislation. The key provision is an enhancement to the employee retention tax credit program called Recovery Startup Business (RSB) provision. It qualifies business owners with revenue under an average of $1 million in gross receipts for the previous three years who started a new trade or business to tap into an additional tax break.
“It effectively means the new product or service offering can become eligible for the employee retention tax credit, simply by starting that new trade or business,” he said. It can be as much as $50,000 per quarter, the last few quarters of 2021. You will likely hear more about that.
But to clarify, that is a program at the company level. It is not something that the individual employee is able to claim, he explained.
How the R&D Credit Program Works
The R&D Credit Program expanded farily significantly about five years ago. It is most relevant to the tech startup space, and legislators are getting ready to potentially enhance that as part of the infrastructure bill that was being debated in Congress, noted Johnson.
“What happened about five years ago, the government targeted early-stage businesses which, in large part, are in the tech space,” he said.
Qualified tech companies could start to utilize that credit against the payroll tax obligations. Before they did that, it was only creditable against the income tax. All others who do not have an income tax application could not claim that credit.
So the change allowed businesses for the first five years to claim up to $250,000 tax credit for payroll tax obligation. As part of the infrastructure bill, there was a proposal to expand that to an eight-year period and double the amount of credit that can be claimed against federal tax filing from $250,000 to $500,000, explained Johnson.
Something for Mom-and-Pop Tech Shops Too
Credit programs generally are employment, innovation, or infrastructure-related. As part of the employee retention tax credit, legislators lowered the eligibility threshold requirements, explained Johnson.
The latest change reduces the threshold for how badly your business has to be hurt. The 50 percent threshold dropped to 20 percent.
“A lot more businesses will be eligible for it in the first quarter of 2020,” said Johnson.
Another change to consider is the Work Opportunity Tax Credit (WOTC). It will affect employers who hire workers who are difficult to hire. You can get a tax credit for participating.
Something else out there in the taxosphere from the infrastructure perspective is green energy credits. These are likely to also be part of the infrastructure bill.
“So if you are deploying energy-efficient equipment in your business and relying on green energy, there are credits that are available to you,” Johnson suggested.