Tax Tips For Business Owners Of Tech Companies To Start A Tax Plan
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You should have a candid tax planning discussion with your accountant as soon as possible
To prosper in uncertain times, entrepreneurs are becoming more and more innovative in their use of relief opportunities when they become available and by adjusting their plans to mitigate the new challenges.
⇒ For technology companies, great benefits resulted from the rapid adoption of technology that shifted their operations off-site.
⇒ Take careful note of new relief opportunities.
⇒ Watch out for tax code changes for 2021 and adjust your course when required for the longevity of your enterprise.
Future Change
⇒ A fifteen percent alternative minimum tax (AMT) for corporations earning above $100 million.
⇒ Demanding that companies return public investments or tax benefits when they move US jobs overseas.
⇒ Expanding tax credits for energy-efficient buildings.
⇒ Expansion of tax breaks and access to 401(k) plans.
⇒ Granting of a 10 percent “Made in America” tax credit.
⇒ Introduction of tax credits for hiring disabled persons or for investments made to make the workplace more accessible.
⇒ The corporate tax rate might go up from 21 percent to 28 percent.
⇒ The elimination of deductions for expenses relating to the removal of jobs out of the US.
⇒ The GILTI rate on foreign profits can increase from 10.5 percent to 21 percent.
⇒ The temporary expansion of net losses might be suspended.
Be vigilant:
You need a tax plan, but things can change suddenly, so you need to have frequent discussions with your tax accountant. You have to be lean enough to withstand potential changes and move fast to take advantage of relief opportunities.
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Your last change to take advantage of the cares Act
Public and tech companies can still take advantage of some of the beneficial provisions of the Cares Act:
⇒ Take more significant deductions for net operating losses (NOLs). The act provides a five-year carryback period for NOLs for tax years between January 1, 2018, and December 31, 2021. In addition, it suspended the 80-percent taxable income limitation on the use of NOLs. As a result, taxpayers can fully offset taxable income for these years.
⇒ Qualified Improvement Property (QIP) is eligible for a 100 percent bonus depreciation. The QIP period is fifteen years. This shorter cost-recovery period allows QIP to be 100 percent eligible for bonus depreciation applied retroactively to property acquired after December 31, 2020, including the tax year 2021.
CONSIDER: File amended returns for 2020 and 2021 to take advantage of the above. In addition, some of the CARES Act provisions will likely change under Biden. Now is the time.
The R&D tax credit
The R&D tax credit applies to developing new and improved processes, software, and products. Businesses that report losses can offset some of the lost revenue this way.
Ask your tax accountants to undertake an R&D tax credit study to determine if your enterprise qualifies for the dollar-to-dollar offset of income tax.
⇒ Start-ups with under $5 million in revenue and no tax liability can apply the R&D tax credit to offset up to $250,000 in payroll per year for five years.
⇒ Starting 2022, you can no longer expense R&D costs. Instead, you will have to capitalize and amortize it.
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Compliance with ASC 740 analyze and disclose income tax risks
ASC 740 governs accounting for income tax and requires enterprises to analyze and disclose income tax risks . Accordingly, ASC 740 errors might require the restatement of financial reports and might lead to enforcement actions against you by the US Securities and Exchange Commission (SEC).
⇒ A qualified tax advisor can prepare your global income tax provision and analyze uncertain tax positions.
⇒ Your advisor can prepare the related footnote disclosures in the company statements to withstand the scrutiny of regulators.
Wayfair rulings
⇒ If you sell SaaS, mobile apps, hardware, or other tangible goods, you MUST understand how the states where your clients reside interpret the Wayfair -related laws.
⇒ The pandemic affected states and local governments’ revenues, and they will most likely increase tax rates to offset losses. Therefore, your tax analyst should remain on top of this developing situation.
⇒ Public technology companies must review how their remote workers impacted their state income tax, franchise tax, and sales and use tax.
⇒ COVID-19 relief for these enterprises may only apply in 2021.
Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.
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