• January 25, 2020

WOTC at Work in Empowerment Zones and Renewal Communities

If you plan to hire new employees in the coming months, the Work Opportunity Tax Credit (WOTC) may be one of the best ways to offset the increased cost of doing business in the short-term. That’s because when you hire employees from key groups such as ex-felons, veterans, and persons with disabilities, the IRS will give you a break for the employee’s first year of employment. It’s a good deal.

The WOTC is something that we here at Tax Credit Group, Inc. specialize in and we understand the ins and outs of the process of applying for and receiving the credit. A little while ago, we wrote a blog post telling you some of the most important keys of the WOTC. It covers the basics.

But like most things the IRS is involved in, there’s a lot more to the WOTC than meets the eye. While veterans, persons with disabilities, and ex-felons are key hires, the WOTC also gives you credit for hiring people who live in an Empowerment Zone, an Enterprise Community or a Renewal Community.

I know you’re thinking, that sounds great, but what are they?

What is an Empowerment Zone, Enterprise Community or a Renewal Community?

According to the U.S. Department of Housing and Urban Development (HUD), “Renewal Communities (RCs) and Empowerment Zones (EZs) are distressed urban and rural communities where qualifying businesses are eligible for billions of dollars in tax incentives.”

These community designations were created in 1993 with the idea of reducing unemployment and generating economic growth in distressed communities. Communities that applied to participate in the program were asked to provide comprehensive plans that included strategic visions for change, community-based partnerships, sustainable community development, and economic opportunities.

The U.S. government used census data to help designate these communities, but it was up to leaders in the communities themselves to apply for these tax incentives.

While there are fewer of these zones and communities today, they still exist. In most federal publications, you will hear the terms Empowerment Zone or Renewal Community and you will rarely hear the term Enterprise Community.

Extension of the WOTC

In December 2019, Congress extended the WOTC to December 31, 2020. As part of that extension, the government extended the tax credit regarding Empowerment Zones, Enterprise Communities, and Renewal Communities retroactively so that it applies to the period from January 1, 2018 to December 31, 2020.

In other words, the tax credit you receive for hiring people from these zones and communities still exists.

How do I find out if someone I employee lives in an Empowerment Zone or Renewal Community?

The IRS publication 8850 outlines all of the Empowerment Zones and Renewal Communities (called Renewal Counties by the IRS), but we’ll look at some of the key ones.

Note that in each of the lists below, Empowerment Zone does not apply to the entire city or county but rather specific zip codes within that city or county.

Urban Empowerment Zones

• Baltimore, Maryland
• Boston, Massachusetts
• Chicago, Illinois
• Cincinnati, Ohio
• Cleveland, Ohio
• Columbia/Sumter, South Carolina
• Columbus, Ohio
• Cumberland County, New Jersey
• Detroit, Michigan
• El Paso, Texas
• Fresno, California
• Gary/Hammond/East Chicago, Indiana
• Huntington, West Virginia
• Ironton, Ohio
• Jacksonville, Florida
• Knoxville, Tennessee
• Los Angeles, California
• Miami/Dade County, Florida
• Minneapolis, Minnesota
• New Haven, Connecticut
• New York City, New York
• Norfolk/Portsmouth, Virginia
• Oklahoma City, Oklahoma
• Philadelphia, Pennsylvania
• Camden, New Jersey
• Pulaski County, Arizona
• San Antonio, Texas
• Santa Ana, CA
• Louis, Missouri
• East St. Louis, Illinois
• Syracuse, New York
• Tucson, Arizona
• Yonkers, New York

Rural Empowerment Zones

• Aroostook County, Maine;
• Desert Communities in Riverside County, California;
• Parts of Griggs County and all of Steele County in North Dakota;
• Kentucky Highlands including parts of Wayne County and all of Clinton and Jackson Counties;
• Mid-Delta Mississippi including parts of Bolivar, Holmes, Humphreys, Leflore, Sunflower, and Washington Counties;
• Middle Rio Grande FUTURO Communities in Texas including parts of Dimmit, Maverick, Uvalde, and Zavala Counties;
• Oglala Sioux Tribe, South Dakota including parts of Jackson and Bennett Counties and all of Shannon County;
• Rio Grande Valley in Texas including part of Cameron, Hidalgo, Starr, and Willacy Counties.

The HUD website used to have a locator, but at last check, it was not working. At this time, it’s better if you contact us here at Tax Credit Group or your local government agency to find out what zip codes fall in an Empowerment Zone or Renewal Community.

Conclusion

Navigating the federal tax code is extremely difficult. It is a massive document and even the most seasoned of CPAs don’t have a grasp on the entire thing. We here at Tax Credit Group make it our business to understand the tax credit side of the tax code and we keep up to date on the latest developments involving tax credits like the WOTC.

The information that we’ve provided above is meant to be informative, but not a specific recommendation directed at your business. It’s tough to know if a tax credit applies specifically to your business without seeing the whole picture first.

If you would like to explore WOTC opportunities further, please contact us.

• January 25, 2020
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• WOTC Tax Credits

• January 18, 2020

Tax Deductions Your Small Business Might Be Missing

Tax time is coming. There are few certainties year over year, but your tax deadline is one of them. For small business owners, this can be a scary time of year. Have you gathered all the paperwork you need to give your accountant? Have you paid enough in estimates? And the big question, are you going to owe money?

2020 Tax Deadlines

Let’s start with the basics. When are your taxes due? Depending on the type of taxes you file, you have different deadlines. The IRS has a whole booklet on deadlines, but here are the biggest ones.

While extensions are nice, seasoned small business owners know that even if you file a tax extension, the money is still due and a large portion of that tax return has to be completed by the March/April deadline.

In other words, the extension only helps a little.

How it can help, however, is it can give you more time to decide and find those deductions that might help you lower what you owe the federal government. As you’re looking for new deductions that you might have missed, consider some of the following items.

Bad Debt

We’re not talking about the money you may owe someone and have not paid, but the money that a customer owes you and has not paid. To claim a deduction, you must prove to the IRS that you’ve taken multiple actions to try and collect the debt. If you used a professional to help, such as an attorney or collection agency, then that fee is also deductible.

The IRS does not want to punish you simply because someone else refuses to pay.

Interest and Fees

A small amount of debt for a business can be a good thing. Maybe, you’re paying down the purchase of a large piece of equipment or you’ve made improvements and are paying for them in installments. Whatever the case, the IRS will allow you to deduct interest on loans and credit cards as well as late fees. You’re also able to deduct bank fees for overdrafts and insufficient funds.

Home Office

This one is tricky, but completely worth it if you know how to calculate the deductions. You first need to prove that the area you call your home office is where you do a majority of work. Then measure that area.

For instance, if your “office space” is a desk on the side of your living room, then measure the square footage your “office space” takes up. Take into account the footprint of the desk, your office chair and the space around your chair that you use for filing, movement, and supplies. A common misconception is that a home office must be a room with doors and walls. That’s not true. A home office can be a portion of a room.

Once you know the square footage of your home office, you can use that number to calculate the percentage of utilities, mortgage interest, insurance, etc. that your office space uses within the home.

Education and Training

Many professionals need to take courses to maintain their credentials or licenses. Most of those courses cost money. But that money is tax-deductible. Search the past year for any membership dues that you pay to professional organizations, fees for workshops, conferences and tradeshows. They are all tax-deductible.

Conclusion

Remember, the advice in this post is only meant as a guideline and may or may not be pertinent to your specific situation as an individual or small business owner. Only a CPA can tell you whether these deductions are something that you can apply to your business. Be sure to consult a professional before you make any deductions that you are unsure about.

And as you’re preparing for your meeting with your CPA, get a jump on some of the things he or she might ask you for. If you’re looking for a place to start, take a look at our previous post 10 Things Small Business Owners Can Do to Get A Head Start on Taxes.

• January 18, 2020
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• WOTC Tax Credits

• January 15, 2020

24 States Increase Minimum Wage in 2020

The start of 2020 also means a new round of minimum wage increases across the country. While the federal minimum wage is $7.25 per hour and it hasn’t changed in more than a decade, states continue to adjust their minimum wage to help America’s lowest earners keep up with the cost of living.

On January 1, 2020, 21 states increased the minimum wage and 3 others will add a minimum wage increase by the end of the year (Source: National Employment Law Program).

Minimum Wage Increases by State

*Minnesota considers a large employer to be a company that does $500,000 or more in annual revenue or has more than 100 employees.

**Minnesota considers a small employer to be a company that does less than $500,000 in annual revenue and has fewer than 100 employees.

***New York’s minimum wage change took place on December 31, 2019. The next change will take place on December 31, 2020, when the minimum wage will rise to $12.50 per hour.

In addition to these changes at the start of 2020—or in the case of New York on the final day of 2019—there are a small number of states that will increase the minimum wage partway through 2020.

On July 1, 2020, Oregon will increase its minimum wage from $11.25 per hour to $12 per hour.

Also on July 1, 2020, Nevada will require companies that offer health benefits to increase their minimum wage to $8 per hour, up from $7.25 per hour. Minimum wage workers who are not offered employer health benefits will see their wages rise from $8.25 per hour to $9 per hour on July 1, 2020.

Connecticut is expected to increase its minimum wage from $11 per hour to $12 per hour on September 1, 2020.

While a majority of states are pushing toward a $15 per hour minimum wage, five states in the U.S. still operate with the federally mandated minimum wage. They are Alabama, Louisiana, Mississippi, South Carolina, and Tennessee.

Illinois Implementing Two Minimum Wage Increases in 2020

The state of Illinois isn’t just hiking the minimum wage at the start of 2020, it’s also doing it in the middle of 2020. On July 1, 2020, the state’s minimum wage will jump again, this time to $10 per hour. This is all part of the state’s plan to reach the $15 per hour mark by 2025.

How Illinois is Helping Small Businesses with the Minimum Wage Increase Through Tax Credits

Luckily for small businesses, state legislators recognize that two minimum wage increases over six months can be a major burden for small businesses. That’s why the state has set aside money for tax credits. Small businesses with 50 employees or fewer will have to adhere to the state’s minimum wage increases but can apply for credits through form IL-941.

The maximum tax credit allowed will be 25 percent of the difference between the new minimum wage and what the employee was previously paid.

Preparing for Minimum Wage Increases in Your States

State lawmakers try to give small businesses as much warning as possible when it comes to minimum wage increases. In many states, the increases are not just a one-time deal but something that occurs annually. You must be aware of what your state lawmakers are doing and when those changes are set to take effect so that you can properly prepare yourself, your business, and your employees.

Run the Numbers

Before a minimum wage increase takes place, run through the numbers. Calculate what kind of increase that means weekly, bi-weekly, monthly, and annually for your expenses.

You want to remember that an increase of $1 more per hour in wages is much more than that when it comes to the cost of doing business. It also means an increase in Social Security, unemployment, disability insurance, and workers’ compensation. When you’re calculating what you can afford, make sure that you take this into account as well.

Make Your Business More Efficient

More often than not, an increase in the minimum wage also means you’ll need to increase the efficiency of your business. Look at your business model and see if there are ways that you can be more efficient. See if there is fat you can trim.

• January 15, 2020
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• WOTC Tax Credits

• January 7, 2020

How the SECURE Act May Change Your Mind About Offering an Employee Retirement Plan

In late December 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The act is designed to increase access to tax-advantaged accounts for more Americans and keep older Americans from outliving their retirement assets.

One of the biggest steps the SECURE Act takes is to incentivize small businesses to offer a retirement plan for employees.

Small Business Benefits in the SECURE Act

The act has several provisions that will add incentives for small businesses to create retirement plans for their employees.

The site Society for Human Resource Management (SHRM) outlines all of the benefits here, but here are a few of the highlights you need to know about.

• The SECURE Act increases the tax credit incentive for starting up a retirement plan. The credit increases from the current $500 to up to $5,000 in some circumstances;
• There’s another tax credit for small businesses that create an automatic enrollment plan for new employees. It’s an additional $500 credit for three years;
• The act will also give companies more time to adopt new plans and simplify some of the rules and requirements for safe harbor 401(k) plans.

In-Plan Annuities for Retirement Plans

The other change the SECURE Act offers is an expansion of the ability for employers to offer a group annuity to employees.

According to Investopedia, “An annuity is a financial product that pays out a fixed stream of payments to an individual. These financial products are primarily used as an income stream for retirees. Annuities are created and sold by financial institutions, which accept and invest funds from individuals. Upon annuitization, the holding institution will issue a stream of payments at a later point in time.”

Until now, employers have been wary of annuities because if their provider is out of business when the payouts begin, the employer can be held responsible. The SECURE Act makes it so employers can be protected from liability if the annuity provider has met a series of requirements for the past seven years.

Those requirements include:

• The annuity provider has a license provided by the state insurance commissioner;
• The annuity provider has filed audited financial statements as required by state laws;
• The annuity provider meets the statutory requirements in all the states that the annuity provider does business.

Other Retirement Changes in 2020

In a separate move, the IRS increased the 401(k) contribution limit.

The contribution limit has increased for employees who take part in a 401(k), 403(b), most 457 plans, and the Thrift Savings Plan. The contribution limit has increased from $19,000 to $19,500. The catch-up contribution limit for employees 50 and over has increased from $6,000 to $6,500.

You can find the details on the IRS site here.

Conclusion

These new incentives to start and maintain an employee retirement plan may be just the push your business needs to get the ball rolling. If you’re considering adding an employee retirement plan, check out this previous post that looks at your retirement plan options.

You also want to consider if this is the right move for your business. Consult your accountant before you make any moves and if you need any advice on what tax credits do and do not apply to your specific situation, feel free to contact us here at the Tax Credit Group.

• January 7, 2020
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• WOTC Tax Credits