Technology in the energy industry is evolving at a rapid pace. Solar panels are becoming leaner and more efficient – providing more capacity at a lesser cost, mimicking the path of more traditional computer hardware. Below are 5 reasons why we believe solar is worth considering today to boost your bottom line.
- Your energy bill is one of your biggest – when was the last time you reviewed it with an expert? Solar isn’t always the answer for reducing costs but if you’re not at least considering it as part of an overall effort to reduce your company’s energy costs you may be leaving a lot of dollars on the table.
- With the current Federal Tax Credit available the cost of your install may not be as high as you think. The clock is ticking though. The current credit rate is 30% of the cost but this incentive is NOT permanent. The legislation is on a schedule to decline and eventually drop off completely (without further action from Congress). Between the current Federal credits, state incentives, depreciation benefits and available USDA grants, going solar may not cost as much as you think.
- The states have various ways to connect you to the grid and all kinds of different incentive programs. Navigating your state’s system may be challenging but, while it is important that you have a general understanding of what system will work best for your needs, the qualified expert you hire should handle the bulk of the heavy lifting.
- Financing is available. Banks are catching on to the benefits of providing financing for these projects – particularly for large manufacturers. More and more we hear about banks working out the collateral issues that may have caused issues in the past and seeking to educate themselves on what these projects entail. Bottom line here – the cost savings related to solar can provide a benefit above and beyond the cost of financing which is becoming more readily available.
- To remain competitive in today’s rapidly evolving marketplace, businesses must appeal to the needs of end users. People are becoming more and more conscious of their impact on the environment. Whether you believe in climate change or not the fact is that consumers care about where their products are coming from now more than ever. Solar panels are a clean energy technology. As consumer attitudes trickle up the supply chain you may find that your environmentally friendly decision to incorporate solar is a key differentiator for you in your marketplace.
What’s the next great challenge for the solar industry?
How about storage? While the technology for generating energy has grown by leaps and bounds we still see much waste as storage technology is limited and very expensive. The ability to efficiently and cost-effectively store, instead of losing, the energy produced will be a game changer.
For More Information
Through our volunteer work within the energy industry and our experience assisting clients to navigate through these types of projects, we’ve made a lot of contacts. We’d be happy to connect you with an experienced solar professional that can not only provide you with the information needed to make an informed decision as to whether or not solar is a good fit for you but who will also fully guide you through this process from the planning stage through completion and provide continuous monitoring and system alerts. And of course, as your trusted advisor, your CPA can make sure the numbers make sense for your business and that you’re maximizing the tax incentives available to you.
Tax credits are important. These are our government’s “carrots” for business owners. They are saying “Hey! Please focus here! Our economy depends on it! And if you do, we’ll thank you with a reduced tax bill.” Credits are dollar-for-dollar reductions in your tax bill. 100,000 in credits = $100,000 off your taxes (unlike a deduction for which the actual benefit is really the deduction times your tax rate (i.e. a 100,000 deduction = $35,000 in tax savings at a 35% tax rate). But enough numbers, the bottom line is that our government knows that research and development is a key factor to economic growth. It keeps us ahead of our competition. That’s why it’s no surprise they reinstated the R&D credit last year. And, unlike in years past where they only reinstated the credit for one year, this time they made it permanent. So now that we know it’s going to be around for a while, below are 10 key things that you need to know.
- Yes, technology companies are eligible for this credit. And the technology or software you develop does not have to be groundbreaking. Chances are if you are working to develop a new version of an existing technology or software application, in any industry, there is a strong chance you could benefit from the Research and Development tax credit. With respect to software, even software developed for internal use may qualify.
- Do you need an outside R&D firm? Well, it depends. Your tax preparer, given the necessary information, can complete the tax form. However, failure by taxpayers to record and maintain documentation supporting the qualified research activity, as required by the IRS, is a major reason for the loss of a research credit. In addition to guiding you with recordkeeping, an R&D firm may also help you identify R&D qualified activity that you might not have considered and will help you support your positions under audit. All of these services do come at a cost though – finding the balance between risk and reward is key to this decision.
- Did you know that if you are a qualified small business you may be eligible to offset payroll taxes with R&D credits generated? What a great opportunity for those startup tech. companies who may not have started generating profit and income taxes yet!
- Does claiming the research credit increase my chances of an IRS examination? No one can say for certain. The research credit, if entitled, can provide some HUGE tax savings and therefore it is reasonable to conclude that the IRS scrutinizes tax returns claiming the credit more than returns without it. The key here is to know the risks and make sure you are comfortable with, and able to support, the positions you are taking with respect to this credit.
- Can I use R&D credits even if I’m in AMT (Alternative Minimum Tax)? You can now! In the past you couldn’t offset AMT but that all changed with the last extension (with certain exceptions (of course!)).
- Your state may offer R&D credits – MA, RI & CT do and they all have their own ways of calculating them (nothing your CPA can’t handle!).
- Federal R&D credits carry forward for up to 20 years if you don’t use them! Most states with R&D have carry- forward provisions as well, however, they are often for much shorter periods. Also, refer to # 3 above and see if you can use them against payroll taxes instead.
- Think you missed out on these credits in the past? You can amend to take advantage of this credit (generally up to three years back) however the way you calculate the credit is more limited on an amended return.
- Federal R&D credits are available to most businesses regardless of the structure of your entity. If you operate a flow through an entity that doesn’t pay taxes at the corporate level, those credits can pass down to you to be claimed on your individual return. This feature may or may not be available at the state level depending on the state.
- While a full discussion of qualifying activities is outside of the scope of this post, it is helpful to know that the calculation considers wages, supplies and contracted R&D costs (limited to 65%). It most notably excludes the cost of any equipment used for R&D activity (including depreciation) and any overhead costs. Also, any research after commercial production commences does not qualify.
For More Information
Below is a link to some additional information on what activities qualify. This is basic information that can be found right on the IRS’s website. Check it out and more importantly call your CPA who, as your trusted advisor, will help you see how this opportunity might fit into your 2017 tax plan.
So first of all – congratulations! Starting your own business takes guts and entrepreneurship is a key driver of our economy. So bravo and thank you for taking the big leap. At the risk of “raining on the parade”, we can’t ignore the hard truth out there which is that most new businesses fail within the first two years. And while we know that a good business model incorporates many factors outside of accounting we want to do our part to help you know whether or not your business is financially sustainable for the long haul.
- Initial costs to launch – start-up costs vary significantly depending on your business model, industry, market, etc. The bottom line is you need to be realistic about what it’s going to cost you to get off the ground. The more research you can do up front the more accurate the numbers will be and the more you will be able to show investors you’ve done your homework. Don’t forget to add some cushion for unforeseen costs.
- Pricing your products – finding the “win-win” pricing model might be the hardest part of ensuring your business is ready for the long haul. There is a delicate balance between your costs and what your customer is willing to pay for your product or service. Once you set a price – adjusting it can be even trickier. Take the time to understand your market and your costs and think about trends affecting both.
- Don’t forget about the indirect costs – in addition to whatever it costs you to manufacture your widget or provide your service, there are going to be indirect costs. Indirect costs include items such as attorney and accounting fees, insurance costs, advertising, state imposed fees and taxes, etc.. While indirect costs may be a smaller part of your budget, failure to include them could have a significant impact on your start-up.
- Fixed and variable costs – it’s really important to understand the difference between fixed and variable costs. In short, variable costs change with your level of production (think materials cost for any given product – the more you make the more material you need) whereas fixed costs are the same regardless of how much activity your business had during any given period (think rent – your landlord doesn’t care how many widgets you made last month). The key is to not over-commit on the fixed costs side and know exactly how to adjust your variable costs as your business needs change. For example, as your starting out, it may make sense to hire an outside bookkeeper vs. a full-time employee as the long term commitment is less and you can keep this cost out of your “fixed” bucket.
- Raising funds – there are various ways to obtain capital for your start-up. For purposes of this post, we’ll focus briefly on debt vs. equity. Debt is generally more readily available as most banks offer some sort of small business loan package. Equity typically starts out with a “friends and family” round and progresses once proof-of-concept takes place. The biggest difference between the two – control. Banks are looking to ensure they make their money back at the market interest rate. They want to make sure their funds are collateralized and secured but they won’t tell you how to run your business. Equity investors feel they are taking a bigger risk and generally are looking for a bigger rate of return (if they wanted the going interest rate they would stick their money in the bank). Depending on the level of investment, an equity investor may have a say in important company decisions and may even look to have a seat on your board. There are risks and rewards to both funding mechanisms and the key is to understand and be comfortable with what you’re sacrificing for that upfront cash influx.
Wondering what to look for in a CPA for your new business?
From the get go you should look for someone who is willing to invest their time in your idea. Accounting is more than just putting numbers on a page. Find someone who is reputable and listens closely to understand your needs. Have lunch with them before committing and make sure you actually enjoy having a conversation with that person. With the right fit, they will bring valuable information to the table with all of your biggest business decisions. The fact is you don’t need a CPA to handle your books or even your tax return but you do want one. Quite frankly the upfront cost savings of going with the lowest bid tax prep shop can result in big headaches and potentially big money losses as your business matures.
Hungry for more?
Through our volunteer work with local organizations that cater to start-ups and our experience assisting clients to navigate through this endeavor, we’ve made a lot of contacts. We’d be happy to connect you with some additional resources to ensure you give yourself the best chance for success with your new business.
Are you currently operating a business in Rhode Island and looking to expand? Perhaps you have a business outside of RI that you’re looking to relocate. Rhode Island, in an effort to attract and retain new and existing businesses, enacted the New Qualified Jobs Incentive Act in 2015 and has already awarded several job creators significant annual, redeemable tax credits that have allowed them to make expanding or relocating to RI more financially feasible. Here are some quick Q&A’s to learn more about the Qualified Jobs Incentive Act to see if it could potentially benefit your business!
Is the Credit Available for My Industry?
While there aren’t any limits on industries that can apply for the credit, RI Commerce provides a list of “Target Industries”, at the top of which is IT/Software, Cyber-Physical Systems, and Data Analytics. They are particularly interested in supporting the efficiency, presence, and output of these businesses in the state. The job creation requirements can vary by industry and company size, and target industries benefit from reduced requirements.
How Much of a Tax Credit Could We Expect to Receive?
The amount of tax credit received by an applicant will always be on a per new full-time job basis. Until the credit has been awarded to a cumulative 500 jobs, the tax credit could be up to $7,500 (the maximum credit) per new full-time job. Once this cumulative job threshold has been exceeded, the tax credit granted will be limited by factors including the number of new jobs created, wages paid, industry, and location.
What is Involved in the Initial Application and Reapplication Processes?
For businesses interested in this credit, a good first step would be to visit the RI Commerce’s website page for the Qualified Jobs Incentive Tax Credit (see link below). This is where you can find the actual initial application required. Generally, it requires basic business and job creation information, a project summary, details on operations, and other criteria related to eligibility. After a company has been approved for the first year, there are annual requirements to maintain this credit. This includes a “Statutory Report”, “Annual Report”, and “Base Number Employment Report”. These communicate to the state whether or not the requirements of new jobs have been met, and determine how much of a credit your company is eligible for in the following year. These reports do require verification from a CPA licensed in Rhode Island.
How Will this Credit Affect my Tax Return?
The credit received by applicants is a state credit that will reduce your tax liability dollar for dollar on your Rhode Island state tax return for both businesses and individuals through pass-through entities. Credits that exceed an applicant’s tax liability may be carried forward for up to four years. As an added bonus to this incentive, the State of Rhode Island included in the regulations that these credits may be redeemed directly with the State in whole or in part for 90% of the value of the tax credit. This means you don’t even need a tax liability to obtain value from this incentive.
What is a “Hope Community”?
In Rhode Island, certain municipalities are deemed a Hope community when the percentage of families below the poverty level is greater than that of the state as a whole. Currently, the Hope communities in Rhode Island include Central Falls, Pawtucket, Providence, West Warwick, and Woonsocket. Jobs created in a Hope community increase the amount of tax credit per job by $1,000 (not to exceed the maximum credit of $7,500). The base credit for employers begins at $2,500 and this is one of a few factors that can help employers qualify for an increased credit.
For More Information
If you’re looking for some more detailed information, RI Commerce provides links to The Qualified Jobs Incentive Act, its regulations, and application review and evaluation principles for your reference.
http://commerceri.com/finance-business/taxes-incentives/qualified-jobs-incentive/