SPECIALIZED TAX CREDITS
NEW BREED ASSOCIATES has partnered with national tax consulting firms specializing in niche tax services such as:
We also provide fixed fee Patent Services which allows our Clients to focus on their day-to-day activities while providing them an excellent opportunity to obtain patent protection on their new or improved products and processes.
- R&D Tax Credit
- Cost Segregation & Energy Efficiency Studies.
We work directly with companies as well as align ourselves with CPA firms as their outsourced engineering department to provide specialized tax incentives to their clients. Our staff includes some of the industry's most experienced attorneys, engineers, and audit experts from national consulting firms. Our legal and technical staffs provide a complete turn-key, low risk solution to clients generating substantial cash refunds.
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US R&D Tax Credits
What is the US R&D Tax Credit?
The Research and Development (R&D) tax credit was created by Congress as part of the Economic Recovery Tax Act of 1981 to encourage American industry to invest in research and development activities. The purpose of the credit was to stimulate R&D activities among businesses through tax incentives.
Benefits to Clients
* Millions of dollars in tax credits, resulting in cash back from the IRS for previous open tax years
* $1 for $1 reduction on current year’s tax liability
* Additional tax savings in future years
* Carry-forward up to twenty (20) years
Who can use it?
* Software Developers
* Tool and Die
* Machine Shops
* Plastics Manufacturers
* Food Sciences/Manufacturers
R&D Tax Credit Engineering Study
NBA offers affordable pricing and flexible payment arrangements to their clients. We work in collaboration with the client and CPA firm to understand their needs and their ROI via this program.
Our turnkey package includes:
* Credit Calculations, Detailed Timesheets and Summaries
* Engineering Report
* R&D Audit Defense at no additional cost
* Support level for CPA
Why use Paradigm?
* Staff includes engineers and IP attorneys with an engineering background as required by the IRS
* We use the Comprehensive Project by Project Approach methodology to conduct our studies as required by the IRS
* We provide free audit defense
* We use a two phase approach to minimize the risk to our clients
Five Questions to ask when choosing a Consulting Firm
1. Does the firm employ engineers?
In your due diligence in selecting a consulting firm to perform your R&D Study, make sure the firm has the following attributes:
Ask for the biographies of the individuals on their production staff and determine if each individual involved with your Study is either an intellectual property attorney with an engineering background, or an engineer.
2. Does the firm use the Comprehensive Project-by-Project Methodology?
Ask if the firm will utilize the comprehensive project-by-project methodology as well as establish a detailed “nexus” of Qualified Research Expenditures to Qualified Research Activities. One of the IRS’s biggest concerns is that the some companies’ “engineering” reports are in fact written by individuals with no engineering or scientific background and that “no nexus” is established between a company’s qualifying expenditures and qualifying activities. Their documentation should directly connect the project to the employee and the estimated time spent on that project to each of the years under engagement. It is the most thorough methodology accepted by the IRS today.
3. Does the firm assume most of the risk?
To begin a project, most firms will ask to bill by the hour (sometimes with a cap) or sell on a lump fixed fee. This approach carries too much client side risk because there are too many variables that simply cannot be foreseen at the beginning of the project. Choose a firm that is willing to assume most of that risk and for a nominal fee to answer all of those variables by determining the following:
* What your credits actually are, per year
* What your exact utilization of those credits will be
* What your base % is and whether that affects your utilization
4. Does the firm include Audit Review as part of their fee?
Since the IRS has elevated R&D Studies to a Tier One issue, there is a greater chance for an audit and the onus is on the taxpayer to substantiate their credits. It is imperative that the consulting firm you choose be willing to accept the risk of an audit should it occur and include the audit review as part of their fee. They would do this only if they felt confident enough that their numbers were correct and their Engineering Report could withstand the scrutiny of the IRS Auditors. Otherwise, you have an open ended situation where you will have to pay that firm or legal counsel on an hourly basis.
5. Does the firm have references to call?
Always ask for references and preferably those in your industry.
What is an IC-DISC?
IC-DISC is an acronym for Interest Charge – Domestic International Sales Corporation.
It is the last remaining export incentive available to U.S. exporters. It has been around in its current form since 1984, but did not become popular until the Jobs and Growth Tax Relief Reconciliation Act of 2003 lowered the capital gains tax rate making it much more attractive for exporters.
It is a domestic 'paper' entity that does not require employees, offices, or tangible assets. To be an IC-DISC, a corporation must be organized under the laws of a State or the District of Columbia and elects to be treated as an IC-DISC and is governed under Internal Revenue Code §§991-997.
Which Companies Qualify?
The different entity types that can use the IC-DISC include flow-through entities (S-Corps, partnerships, LLCs, etc.); and closely-held C-Corps. It's important to note that you do not have to be the manufacturer of any products to take advantage of IC-DISC – you qualify if you export domestically produced products
The industries that have taken advantage of IC-DISC include:
* Software Companies
* Engineering/Architectural firms working on buildings/structures in
IC-DISC is only viable and valuable to the shareholders if the following criteria apply:
* Minimum annual gross export revenues of $2,000,000 (direct or indirectly)
* Minimum annual net export revenues of $500,000 (direct or indirectly)
* Significant tax liability on current or projected revenues
What are the benefits? An IC-DISC Example
: The exporting company creates a tax-exempt IC-DISC. The IC-DISC is a "paper" entity that does not require office space, employees, or tangible assets. In this example, the IC-DISC is set-up under the ownership of the individual shareholders of the exporting company.
: The exporting company pays the IC-DISC a commission. The IC-DISC commission may be determined as the greater of 50% of export net income or 4% of export gross receipts. The commission may be increased even more in certain instances.
: The exporting company deducts the commission amount paid to the IC-DISC from its ordinary income taxed at 35%. The commission income for the IC-DISC is deferred from current taxation.
: When the IC-DISC pays dividends to its shareholders, the shareholders pay dividend income tax, currently at a rate of 15%.
: The net effect is a 20% tax savings on the IC-DISC commission.
Cost Segregation Studies
What is Cost Segregation?
is an engineering-based analysis of the components of a commercial property with the goal of identifying and segregating personal property from real property. The reclassification to personal property assets results in shorter depreciation lives for those assets and the tax benefits of accelerated depreciation and reduced tax liabilities.
Which Commercial Properties Qualify?
Here is a list of property types that qualify:
* Assisted Living
* Apartment Buildings
* Automobile Dealerships
* Bank/Financial Institution
* Fitness/Health Clubs
* Golf/Resorts Heavy
* Hospital/Medical Office Buildings
* Hotels and Motels
* Light Manufacturing
* Office Buildings
* Restaurants (single or multiple)
* Self Storage Facilities
* Strip or Regional Malls
* Tenant Improvements Warehouses
Candidates for Cost Segregation include the following:
* New Construction
* Look Back
* New Acquisition (Purchase Price Allocations)
* Leasehold Improvements
Commercial property that is valued at a minimum of $1,500,000 (excluding land value) or a commercial property with leasehold improvements greater than $750,000 have enough potential benefits to warrant a study.
What are the Benefits?
* Time Value of Money
* Dramatic reduction in taxable income
* Increased cash flow for investment opportunities and business expansion
* Property tax savings
* Insurance savings
Energy Efficiency Studies
Green Building Energy Efficiency Tax Deductions (Section 179D)
The Energy Policy Act of 2005 added section 179D to the Internal Revenue Code. Section 179D permits a deduction for the costs of installing certain energy efficient building systems in commercial buildings.
To claim the deduction, a taxpayer must obtain a certification of energy savings. The certification process must be performed by a qualified firm or individual that performed an on-site inspection of the building. The energy savings must be calculated using qualified software from the Treasury Department’s list of certified software programs. Paradigm's staff includes engineers that are qualified and certified to perform Green Building studies.
Green Building 179D Energy Efficiency Tax Deductions
A tax deduction of up to $1.80 per square foot is available for improving the energy efficiency of existing commercial buildings or designing high efficiency into new buildings. Investments that appreciably reduce the heating, cooling, water heating, and interior lighting energy cost of new or existing commercial buildings are eligible for a tax deduction.
Overview of Green Building Study Process
* Review specifications and determine if building qualifies
* Site visit
* Certified engineer performs the energy modeling and analysis
* The study is completed and turned over to the building owner and their financial advisor
As with many tax incentives, there is a chance for an IRS audit. In the event of an audit, our fees for a study includes 40 hours of audit support. We feel comfortable in providing audit support because our engineers are experienced and follow all the rules and regulations as required by the IRS. In addition we feel our studies will withstand IRS scrutiny because we follow the methodologies recommended by the IRS.
The Next Step
If you are a building owner or a CPA firm with clients that you think might qualify, let our certified engineering professionals help you determine if you can take advantage of this great tax incentive and if so, maximize your deductions.
The Work Opportunity Tax Credit (WOTC)
What is the Work Opportunity Tax Credit?
The Work Opportunity Tax Credit (WOTC)
is a federal tax credit that reduces the federal tax liability of private-for-profit employers. Employers can hire from eleven different targeted groups:
* Qualified Temporary Assistance to needy Families Recipients (TANF)
* Qualified Veterans/Disabled Veterans
* Unemployed Veterans
* Qualified Ex-felons
* Qualified Designated Community Residents (DCR) residing in an Empowerment Zone (EZ), Renewal Community (RC), or in a Rural Renewal County (RRC)
* Qualified Vocational Rehabilitation Agency Referrals
* Disconnected Youth
* Qualified Summer Youth (SY)
* Qualified Food Stamp Recipients (FS)
* Qualified Supplemental Security Income Recipients (SSI)
* Qualified Long-Term Family Assistance Recipients (LTFAR)
Maximum Credit Available
* $1,200 for each new Summer Youth* hired
* $2,400 for each new Adult hired
* $4,800 for each new Disabled Veteran hired
* $9,000 for each new Long Term Family Assistance Recipient hired over a two year period
*The credit is based on 40% of up to $6,000 in qualified wages during the first year of employment. Summer Youth qualify for 40% of the first $3,000 in wages during the required working period of May 1 through September 15.
Minimum Employment or Retention Period
All new employees must work a minimum of 120 hours and individuals hired as Summer Youth employees must work at least 90 days, between May 1 and September 15, before an employer is eligible to claim the tax credit. Recent program changes took place in 2007 that impacted multiple target groups. One such change was the consolidation of the Welfare-To-Work Tax credit program into the WOTC program to become known as Long-Term Family Assistance and a second change was the creation of the new Disabled Veteran target group that went into effect May 25, 2007. On February 17th as part of the American Recovery and Reinvestment Act (ARRA) of 2009 two new categories were created Unemployed Veterans and Disconnected Youth.
The WOTC Program has been reauthorized until August 31, 2011
Long-Term Family Assistance Recipients
who began work after December 31, 2006 and before September 1, 2011, can earn employers up to $9,000 if they are a member of a family:
* That received TANF for at least 18 consecutive months before the hire date
* Whose TANF eligibility under federal or state law expired after August 5, 1997 (for applicants hired within two years after their eligibility expired)
* That received TANF for at least 18 months, beginning after August 5, 1997, and is hired not more than two years after that 18-month period
who began work after May 25, 2007 and before September 1, 2011, can earn employers up to $4,800 if they:
* Are entitled to compensation for a service-connected disability of at least 10%
* Have a hiring date which is not more than 1 year after having been discharged or released from active duty in the Armed Forces of the United States
* Have aggregate periods of unemployment during the 1 year period ending on the hiring date which equal or exceed 6 months
Federal HUD Zone Tax Incentives,
Empowerment Zones and Renewal Communities
Are there any employer incentives for hiring employees who work in an Enterprise Zone (EZ) or Renewal Community (RC)?
The tax code allows employers a credit against Federal taxes for hiring and retaining employees who live and work in an EZ or RC. The EZ Wage Credit has been available since 1994 for Round I EZs and since 1998 for the District of Columbia.
Can a business use this credit for current employees?
. The EZ Wage Credit and RC Wage Credit are incentives to hire and retain individuals who live in an EZ or RC, so it is available each year throughout the EZ Wage Credit and RC Wage Credit periods.
What if the employee works part-time?
The credit is available for both part-time and full-time employees as long as they have been employed by the employer for at least 90 days. The amount of the credit is tied to the amount of wages paid rather than to the number of hours worked.
What is the credit amount?
The EZ Wage Credit amount is up to $3,000, and for the RC Wage Credit is $1,500.
Is there a limit on the number of employees for which a business can take the credit?
An employer can take the credit for as many employees as qualify.
What if the employee works in an EZ or RC for only part of the year?
An employer can use either the pay-period or calendar-year method for determining the period of time the employee performs services in an EZ or RC. No other time periods can be used to prorate the credit.
For example, if an employee works in several factory locations and is paid weekly, an employer can claim the wage credit for the weekly pay periods during which the employee works substantially all of his or her time in the factory located in an EZ or RC.
What if the Federal tax liability of the business is less than the total credit amount?
The EZ Wage Credit and RC Wage Credit generally are subject to the same rules as other business tax credits. As with other business tax credits, unused credit amounts can be carried forward for up to 20 years and carried back a year. However, the credit cannot be carried back prior to the EZ or RC designation.
Can a pass-through entity, such as a partnership, Limited Liability or S-corporation, use the credit?
The EZ Wage Credit and RC Wage Credit are general business tax credits for Federal tax purposes and may be passed through under the rules similar to other business tax credits.
Which categories of employees would not qualify for the EZ and RC Wage Credits?
The EZ and RC Wage Credits cannot be taken for any individual employed at any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other gambling facility, or store whose principal business is the sale of alcoholic beverages for consumption off premises. The EZ and RC Wage Credits are not available for family members of the employer, including sons, daughters, parents, stepchildren, stepmothers, stepfathers, in-laws, and other persons treated as dependents under the tax code. Similar exclusions apply to 5 percent owners related to the employer and family members of majority shareholders or partners of the employer.
Indian Tax Credit
Employees that are certified members of an approved Native American tribe or the spouse of a certified member are qualifying employees. The employee must live on or "near" the reservation and perform the majority of the work on the reservation and has worked for a minimum of one year.
The company must be located on the reservation.
Tax Credit Available
The maximum annual credit available is $4,000 per eligible employee.
What is a Patent?
* A Patent is an Asset
* A Patent is a Marketing Tool
* A Patent can be used to obtain Licensing Income
* A Patent can be used to protect Market Share
A Patent gives a benefit to an inventor and a benefit to the public:
* 20 Year Monopoly From Filing Date For The Inventor
* Once issued and subject to the payment of government fees, a patent gives an inventor the right to exclude others from making, using or selling the patented invention for 20 years from the filing date
What is Patentable?
To be patentable an invention must fall within at least one of the following categories:
* an article of manufacture (like a screwdriver)
* a machine (like a crane)
* a process (like a method to determine if oil is in a reservoir)
* a composition of matter (like an arthritis cream to place on your skin)
* an improvement to any of the above
* an ornamental design for an article of manufacture (like a grating for an air-conditioning register)