Tax Tip Tuesday E.6 – Deductions and Credits

Happy Halloween Everyone!

My kids are dressing up as 2 Minions and a Poppy (Trolls)

They have me going as Gru….

As promised, this week is going to be about tax credits and deductions.

Every brewery in the land should be trying to take advantage of the following:

  • FICA Tip Credit
  • Domestic Production Activity Deduction
  • Research and Development Credit
  • Small Business Health Care Credit
  • State credit and incentives

Let me explain

FICA Tip Credit – For this credit to apply you must have tipped employees.  Think brewpubs and microbreweries with taprooms.  The easiest way to explain this is, reported tips are subject to FICA.  You as the employer must match this FICA amount.  Some tipped employees make a lot of money.  What the credit does is, recapture some FICA paid for wages that exceed minimum wage. The calculation is quite complicated so just understand if you have tipped employees on a throughout the year, you probably qualify.

Domestic Production Activity Deduction – Unlike a credit, this one has some limitations.  This deduction says since you are manufacturing something on US soil and are paying wages, we will give you an additional deduction. How much?  Up to 9% of qualified production activities.  Qualified production activities include wages for production workers (brewhouse staff) and Cost of Good Sold to name a few.  This deduction has a “use it or lose it” clause and is limited by net income.  This one takes careful planning to maximize.

Research and Development Credit – This credit applies to any research and development you perform on premise.  Research and development in a brewery?  R&D can happen in most industries as long as you are trying to improve an existing process. Think test batches or designing new method to handle wastewater.  The R&D credit  must meet a four part test to be valid:

        1. Permitted Purpose – New or help existing process
        2. Elimination of Uncertainty – purpose is to eliminate uncertainty
        3. Process of Experimentation –Systematic process to evaluate one or more alternatives
        4. Technological in Nature – principles of physical, biological, engineering, or computer science.

Small Business Health Care CreditYou may qualify for employer health care tax credits if you have fewer than 25 full-time equivalent (FTE) employees making an average of $50,000 a year or less. It’s worth up to 50% of the costs you pay for your employees’ premiums. Last criteria is, you must participate in the SHOP Marketplace. This one is the hardest to calculate given all the moving parts with FTE’s and premiums.

State Credits and Incentives – Most states have a list of business tax credits and incentives.  The goal of these are to attract new business or expand existing business within the state.  Some examples are: Economic empowerment zones, hiring a veteran, manufacturing & technology focused businesses, to name a few.  Most businesses fail to act on them simply because it takes effort to see what programs are available and apply to them.  A listing of recent incentives can be researched at your specific states department of revenue website.

Lot’a of action here.

 

-cf

 

P.S. Got a tax question? Let me know

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