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Business Owners: Don’t Overlook These Tax Credits

November 8 2016

Small-business owners are always looking for ways to minimize taxes and save money. There are various year-end tax planning strategies to help increase your deductions and identify credits that will minimize your taxes.

While tax deductions reduce your profit, tax credits are an actual credit against the total tax owed. On a personal tax level, a tax deduction would be an itemized deduction, such as mortgage interest; a tax credit would reduce your tax bill dollar for dollar, such as an education tax credit when you or your child attends college.

There are both federal and state tax credits available to businesses. Some are specific to certain industries, but many are available to all businesses.

In Pennsylvania you get an additional benefit: certain tax credits can be bought and sold to other businesses, usually at a discount of 10 percent. The research and development tax credit is available if your company spends money on qualified research. The credit for a small business is 20 percent of the increase in spending over the base period. The research must qualify under the rules for federal research and development expenses.

The Pennsylvania Keystone Innovative Zone (KIZ) tax credit is available to for-profit tech companies that are less than eight years old and are located within a KIZ. There are multiple KIZs in Pennsylvania, including South Bethlehem, East Stroudsburg University, Reading, and Bucks County. The maximum tax credit available is $100,000, and is based on a year-over-year increase in revenue from within the KIZ.

Other tax credits in Pennsylvania include the Educational Improvement Tax Credit for contributing to scholarship organizations to promote expanded educational opportunities for student (maximum $750,000 tax credit per year), and the Tax Credit for New Jobs, which is $1,000 for each new job created (increases to $2,500 if the job is filled by an unemployed individual). The company must agree to create 25 new jobs or increase the number of employees by 20 percent with an hourly wage that is 150 percent of the federal minimum wage within three years of the start date. These credits cannot be sold.

Beginning in 2017, there is a Pennsylvania tax credit available for video game production. This credit is up to 25 percent of qualified expenses in the first four years of production, and 10 percent each year thereafter. This credit can also be sold.

On the federal side, a business can obtain tax credits for providing access to your business for people with disabilities ($5,000), paying for child care for your employees (25 percent of expenses up to $150,000), starting a pension plan for your employees ($500), research and development activities, and hiring employees who are veterans, food stamp recipients, or ex-felons ($2,400 to $9,600 per hire).

There is also a credit for paying for health insurance for your employees. You must pay at least 50 percent of the premium and employ fewer than 25 full-time employees earning under $50,000 a year, on average. The health insurance must be purchased on the SHOP marketplace.

There are many opportunities for a company to reduce its tax bill. This list is certainly not all inclusive. Many tax credits involve complicated calculations, so always consult your Certified Public Accountant for more details and to get a comprehensive list of credits that may be available to you.

Werner & Co. in the Media: PA Taxes and Gov. Wolf’s Budget

March 25 2015

For the last few weeks we have been inundated with discussion of Gov. Wolf’s proposed budget legislation in the newspaper, on TV and social media. Gov. Wolf promises to rebuild the middle class in Pennsylvania with his “gimmick-free budget.” He plans to balance the state budget by cutting property taxes and increasing the sales tax and income tax rates.

Werner WFMZPennsylvania has not seen an income tax rate increase since 2004. Coincidentally, that was also when then Gov. Rendell proclaimed that casinos would be responsible for the largest property tax relief in Pennsylvania. Well, here we are a little over 12 years later, and property taxes in PA are back or above those 2004 levels.

We had the chance to discuss Gov. Wolf’s proposed plan with Channel 69 News Anchor Jaccii Farriss and why Pennsylvania is ranked in the top 10 for states that pay the highest taxes. You can view the TV interview here.

Here is the text of Ms. Farriss’s interview:

Tax time can really sting for folks who find themselves in the red, but when it comes down to who pays the most, you might be surprised.

Pennsylvania is in the top 10 for states that pay the highest taxes, according to a pair of new studies. According to a study done by MoneyRates.com, Pennsylvania ranked in the top 10 states with the highest per capita federal tax burden. Why? Pennsylvania has a larger population, with some of the nation’s highest earners.

In another study, Wallethub.com broke it down in terms of state taxes. The numbers stay pretty consistent with the federal figures, with one noteworthy item. Lower income Pennsylvanians pay a higher percentage of their income in taxes than other residents, nearly 12 percent, while middle income residents pay roughly 10 percent and higher income individuals pay around 9 percent.

Werner WFMZ2So how does this happen? “The reason our taxes are high, I believe, is because we live in the northeast. We expect a lot from our government, and things cost more here than they do in Alabama,” said Andrew Werner, a certified public accountant with Werner and Company in Allentown.

Werner said it’s simple economics. Because lower income residents have less money, they use a bigger percentage of it for taxes.

Pennsylvania Gov. Tom Wolf is trying to ease the tax burden on residents by cutting property taxes and offering $3.8 billion in relief, but at the same time, he is proposing to raise the sales tax.

While food, clothing and prescriptions would be exempt, Kristofer Depaolo, a certified public accountant, said the higher tax could be a hardship for lower income Pennsylvanians.

“Anything of necessity that you or I would spend out money on because their income is a lower, a greater percentage is spent on that compared to a high income earner,” said DePaolo.

A spokesperson for Wolf said the governor wants to ease the blow for some residents by raising the income tax exemption from $32,000 to $36,500 for a family  of four.

In case you were wondering, Pennsylvania is one of five northeast states to make the top 10 lists for taxes paid per capita.

Copyright 2015 WFMZ. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Tax Planning & Strategy

December 19 2014

Currently, our company sign on Hamilton Boulevard reads “Plan your 2014 taxes now”. The truth is, taxes aren’t going anywhere but up so the best thing you can do is learn your options and make a plan.Continue

A New Home for Werner & Co.

August 26 2014

Our renovation dust is soon to settle. We are pleased to announce a new office for the “accountants you like as much as you trust.”

Werner & Co. is moving to our historic new home on September 1st. It’s in Wescosville, on Hamilton Boulevard near Brookside Road. We’re so excited that we’ve already signed in! (see photo) We love this building. The architecture is interesting – a mid-19th Century church, in fact. We completely renovated it, and our architects (Bonsall Shafferman) designed a great interior.

We're moving soon. The handwriting is on the wall!

We’re moving soon. The handwriting is on the wall!

The building is historic, but also new. Even the signage treatment on the outside of the building is an interesting blend of old and new aesthetics. That echoes our own special blend of old school values and new school methods.

We expect our new office to serve our clients and ourselves (plus a tenant, Express Sign Outlet Inc) very well. We hope that you will enjoy it as much as we do. Come visit. Bring friends. Bring new clients! Tours depart hourly.

Look for an invitation to our Open House in a few weeks.

2014 Mileage Rates

June 25 2014

The Internal Revenue Service issued optional standard mileage rates used to calculate the deductible costs of operating automobiles, vans and trucks for business, charitable, medical or moving purposes.  The 2014 rates for business, medical and moving are down 0.5 cent per mile.

Business miles:$0.560
Medical miles:$0.235
Charitable miles:$0.140

A taxpayer may not use the standard mileage rate for a vehicle after using the Modified Accelerated Cost Recovery System (MACRS) depreciation method or after claiming Section 179 deduction on that vehicle.  In addition, the business standard mileage rate may not be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicles rather than using the standard mileage rate.   Actual costs would include gasoline, oil, repairs, insurance, maintenance and depreciation of the purchase cost.   Use of the standard mileage rate in the first year of business use is considered an election to exclude the vehicle from MACRS depreciation.

We recommend that you keep a daily log of the travel and expenses for each of your automobiles to document such income tax deductions.   The IRS tax forms ask if you have written records of your mileage and if you’re ever audited you can be sure the IRS examiners will ask the same.  If you would like more details and advise, please call us 610.770.9236 or send us a message info@wernercpa.net.

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