A business owner or manager often learns about one of the many federal tax incentives such as Section 179D, Section 45L, or others and reaches out for assistance. The first step is to initiate a discussion with the company’s accountant or CPA for guidance. Initial conversations often focus on general eligibility rules and qualifying activities. More in-depth discussions are often deferred because many general practitioners lack the practical experience and technical knowledge to claim such incentives.
Given the complexity of most federal and state incentives, it is imperative for companies to partner with professionals with relevant technical experience and who understand the nuances of specific industries. For example, the Section 179D credit available for qualifying energy-efficient commercial construction requires knowledge of the credit and construction process to make a claim. To find the right provider means Texas businesses have to conduct a thorough search. Unfortunately, this can prove challenging because most Texas business owners are unsure of the right questions to ask. To help clients, prospects, and others, Calvetti Ferguson has summarized the key considerations below.
Importance of Specialized Expertise
Since 2020, there hasn’t been a ‘typical’ tax return; most if not all organizations have used one or more of the COVID-related tax or funding programs. The PPP, Employee Retention Tax Credit, and EIDL are the most popular and well-known credits. However, a roster of other credits has created compelling savings for years. Below is a list of the most common federal tax incentives often claimed that require specialized expertise to capture, including:
- Research and Development (R&D) Tax Credit – A potentially lucrative incentive for businesses that develop new and improved processes, products, and services.
- 179D Tax Deduction – A tax deduction available to construction companies and contractors in energy-efficient building construction and retrofits.
- 45L Tax Credits – This tax incentive is available to home builders and developers.
- Work Opportunity Tax Credit – An opportunity for companies to hire from targeted groups across all industries.
- Work Opportunity Zone Tax Credits – Available for real estate investments made in targeted communities.
- Energy Efficiency Tax Credits
Look for Advisors with Experience in the Profession
A CPA is often best positioned to help organizations with complicated tax incentives. The CPA designation means that the individual has passed a rigorous exam, earned several hours of continuing education credits each year, completed at least a minimum amount of experience in the field, and is well-versed in financial management. A CPA is also regarded as an excellent business advisor. The CPA credential is a symbol of trust and professionalism.
An accountant or independent tax incentive consultant may not have the same experience or ongoing training requirements. There are no specific education, experience, or credentialing requirements for these professionals.
Look for Advisors with IRS Audit Experience
Like the R&D tax credit, refundable tax credits are among the most often cited reasons for an IRS audit. That doesn’t mean the credit is incorrect, but it does mean that the organization and its tax preparer need to be meticulous with record-keeping.
When potentially millions of dollars could be at stake, it pays to work with someone who has experience with IRS audits and examinations. That starts before an audit would even take place: advising the client on documentation requirements and making sure the organization is qualified. Solid documentation and facts are the best defense if an audit comes up. Even then, tax advisors who take a collaborative approach with the IRS will often be the best fit.
Look for Advisors Who Value Transparency
The tax advisor who will handle an organization’s tax incentive filing must be transparent with fees and payment structure. In some cases, reports must be attached to a refund claim, and the service provider’s fees must be listed. The IRS tends to look unfavorably on fee arrangements that are a percentage of the refund amount. Government contracts are another example where total transparency is the standard.
Look for Advisors Who Bring You Value
A good indication of a well-rounded tax advisor is their contributions outside and within the engagement. Whether they’re in the form of thought leadership, tax strategy, tools, or technology, value-adds can extend the relationship beyond identifying and documenting a tax incentive to one that makes a measurable difference for the company.
10 Important Questions to Ask
Before hiring a tax advisor for a specialized tax incentive engagement, these questions can help distinguish expertise, experience, and value.
- How many tax returns have you done for this incentive?
- What does your process look like?
- How much experience do you have in my industry?
- How many continuing education credits do you take each year relative to my industry or this tax incentive?
- How many refund claims for this credit have gone to the IRS for further examination or audit?
- Of that amount, what have the outcomes been?
- What would happen if I were to get audited?
- How do you determine your rates?
- What other value-adds do you offer for this specific engagement and throughout the year?
The tax-saving opportunity available through federal and state tax incentives can be compelling. However, it is essential to carefully review and select a specialty tax consultant with the needed experience and technical acumen to ensure claims are properly filed and honored by the IRS. If you have questions about the information outlined above or need assistance claiming a tax credit, Calvetti Ferguson can help.