Should I consider a Cost Segregation Study?
The Taxman is calling...are you ready to answer?
It’s the end of the year. You’ve provided your CPA with all the financials to estimate your tax liability. Then you get the dreaded call from your CPA…”Ran the numbers and you will have a Georgia tax liability to pay…have you included all your expenses?”
You had a good year, maybe even great. You’ve hired more team members. Upgraded your technology. Expanded your manufacturing facilities. You have made all the right moves to position your business for the future. Yet cash flow is still a challenge and now your CPA is telling you that you have an upcoming tax payment to the Georgia Department of Revenue. Seriously, what can we do? Generating more expenses means spending more cash!
Reduce your Georgia income tax liability with Georgia Tax Credits!
Georgia is a business-friendly state. They have figured out how to reward businesses for taking actions that promote growth and the state’s economy. Dare I say, Georgia is the best in the nation at tying tax incentives for employers who expand the state’s economic initiatives for growth and workforce development.
The beauty of most of Georgia’s income tax credits available to businesses is that they are statutory. You do XYZ activities and you earn ABC tax benefits. Meaning, your year-end tax planning and strategy to reduce your Georgia income tax liability does not require more cash-outlay!
What type of Georgia Tax Credits are available?
There are over three dozen Georgia income tax credits available to businesses. Many, if not most, are very nuanced and they apply to only a select numbers of taxpayers. But there are three Georgia income tax credits that apply to most businesses, provided the required activities have been met.
The Georgia Job Tax Credit
This is a location-sensitive credit based on job growth, so it is important to properly identify where a company has experienced job growth, but as little as two new full-time positions could yield $8,000 in Georgia income tax credits in each of five years for which the positions are maintained. Two new positions could result in $40,000 of tax credits over the five-year period, effectively offsetting $666,667 of Georgia taxable income over that period.
Annually, Georgia ranks their counties into tiers and special zones. The least developed counties and zones offer the highest benefits and the lowest threshold for qualification. The most developed counties have the highest bar for a company to qualify for the credit, but even then, the credit can be both lucrative and beneficial.
Generally, the credit may offset 50% of a company’s Georgia income tax liability, but if they are in certain counties or zones, it may be available to offset 100%. What if the company doesn’t have an income tax liability or the credit is larger than the liability? In Tier 1 counties and the special zones, companies can use the credit to reduce their Georgia withholding tax payments.
Qualification for the Georgia Job Tax Credit requires that the employees are Georgia residents, working full-time, paid above a certain wage level, and offered health insurance. The program also limits the type of businesses that can qualify, except for the 40 least-developed counties and Opportunity and Military Zones where all businesses meeting the qualification criteria will be eligible.
The Georgia Retraining Tax Credit
Any company that implements new equipment or machinery, new technology, and/or new software during the year, is eligible for the Georgia Retraining Tax Credit for costs associated with training their employees on such. Additionally, training programs such as Six Sigma, Total Quality Management, and Kaizen also qualify for the training.
This credit applies to all companies in Georgia regardless of industry or location.
In today’s business climate, almost all businesses, to remain competitive, invests in new equipment, machinery, technology, and software on an annual, or semi-annual basis.
The credit is worth up to $1,250 per employee trained and may offset up to 50% of a company’s Georgia income tax liability. Combined with the Georgia Job Tax Credit, 100% of a company’s tax liability could potentially be offset to reduce the burden to $0.
Similar to the Georgia Job Tax Credit, there are certain eligibility requirements regarding the employees trained. The employees must be Georgia residents, working full-time, employed at least sixteen weeks, and have less than two levels of direct reports.
There is an approval process through the Technical College System of Georgia, but the approval is applied for and obtained after the training has been provided.
The Georgia Investment Tax Credit
The Georgia Investment Tax Credit is limited to manufacturing and telecommunication companies that have had a physical presence in Georgia for at least three years. The company’s expenditures towards the investment or expansion of their facilities may generate a credit in the amount of 1% to 5% of such expenditures, 3% to 8% if pollution control or recycling facilities are part of the investment. The credit percentage is based upon the location of the facility and a minimum investment of $100,000 is required.
The $100,000 threshold is relatively easy for a manufacturing or telecommunication concern to meet.
Similar to the Georgia Job Tax Credit, this credit may be combined with the Georgia Retraining Tax Credit to offset 100% of a company’s Georgia income tax liability. Investment Tax Credits in excess of a company’s income tax liability can be used to reduce the company’s Georgia withholding tax obligations if they are located within certain counties.
The Georgia Investment Tax Credit is taken in the year following the year in which the expenditures are made, so it will not decrease the current year liability, but can increase cash flow for the following year by reducing a company’s quarterly estimated tax payments.
What happens if the credits exceed our Georgia income tax liability?
That’s not a bad problem to have.
Assuming the credits cannot be used against your Georgia withholding tax remittance obligation, the credits generated for tax years before 2025 can be carried forward for up to ten years, offsetting future tax liabilities. If the credits are generated after 2024, the carryforward period has been reduced to five years.
Why didn’t my CPA offer this as a solution for my tax situation?
Don’t blame your CPA or tax professional. Although these credits have been around for decades, they are not well publicized.
Your CPA is highly proficient in determining your taxable income and liability, such as what income is taxable, what expenses are deductible, etc. But these credits are nuanced and the calculation of each is outside of the realm of income and expenses. The determination of qualification and calculation of the credit(s) is often outside your CPA’s or tax professional’s area of expertise.
MPowered Incentives Group
Using a service provider, like MPowered Incentives Group, can help you secure the Georgia Income Tax Credits you qualify for to:
- Reduce or eliminate your tax burden
- Infuse cash to use in your business
MPowered does the heavy lifting while working with your CPA or tax professional to ensure the credit is properly captured on your tax return, complete with all required documentation.
You have peace of mind, solving your Georgia income tax liability issue with credits earned from activities done throughout the year!
