Tax Credits & Incentives

Taking advantage of the available tax credits and incentives at federal, state and local levels creates an opportunity for businesses, and even individuals, to significantly lower their tax liability.

R&D Tax Credits

Federal and state research and development (R&D) tax credits can be applied to a company’s efforts to design, develop or improve a product or process, and to the process of experimentation undertaken as part of those activities. Amounts paid for salaries, supplies, contract research and computer leasing can qualify for the R&D tax credit, and recent changes in government regulations mean more industries are eligible now.

Documenting R&D activities in a way that meets the stringent requirements of the IRS and state tax authorities isn’t easy. As a result, we find many firms don’t receive the R&D tax credit they deserve — or do not qualify for an R&D tax credit at all.

Even if your company isn’t currently in the position to utilize the credit, R&D costs can be carried forward to offset tax on future profits, and the R&D tax credit can be claimed retroactively by filing amended returns for the past three years. Our R&D tax credit experts can work with your internal team to help you identify and effectively document qualified R&D activities. This close collaboration helps reduce your risk of not qualifying for this important tax credit.

Opportunity Zones

Akin to the combined tax benefit of a 401(k) and a Roth IRA, an investment in one of the country’s 8,700 designated opportunity zones has the potential to be one of the most significant tax-benefited investments in the history of the U.S. tax code.

There are two main tax incentives encouraging investment in qualified opportunity zones. The first incentive is a deferral of inclusion in the gross income of certain gains to the extent that a taxpayer elects to invest a corresponding amount in a qualified opportunity fund (QOF). The second incentive allows the taxpayer to elect to exclude from the gross income the post-acquisition gain on investments in the QOF held for at least 10 years.

Additionally, with respect to the deferral of inclusion in gross income of certain gains invested in a QOF, the tax code now permanently excludes a portion of such deferred gains if the corresponding investment in the QOF is held for five or seven years.

Therefore, this one-two combo of incentives is similar to both a 401(k) and Roth IRA, and in most cases, with a much shorter holding period.

Opportunity Zone State Issues

When choosing an investment in an opportunity zone or the various specific QOFs, State and Local Tax becomes very important. As not all states have conformed to some of the federal tax changes around opportunity zones, taxpayers may still incur a tax liability in their home state and potentially in other states if the QOF makes national investments. Armanino can provide the necessary expertise to assist you in QOF selection and/or formation, annual tax compliance and the eventual liquidation of your QOF investment.

Employee Wage-Based Tax Credits

In addition to R&D credits and opportunity zones, another often overlooked area for tax reduction is employee wage-based or payroll-based tax credits. From the Work Opportunity Tax Credit to the Federal Empowerment Zone Tax Credit and many other state-by-state credits, we can help your organization assess what’s available to you today and into the future.