The key to maximizing tax savings lies in understanding the right credits for your business—subject to your specific situation and circumstances.
As an NSCA member, you’re entitled to tax savings through major federal and state credits that can fuel growth, improve the bottom line, and help you recover from the impacts of the pandemic.
There are two federal incentives that can potentially reduce your tax liability. Here’s what you need to know.
1. Employee Retention Credit
The Employee Retention Credit (ERC) is the largest tax incentive available to nearly all businesses, including NSCA members. The credit can provide up to $26,000 per employee. You may have checked into the ERC incentive before, but it’s worth another look today: A recent update could affect your eligibility.
To qualify, businesses must have experienced one of two things:
- A decline in revenue
- Forced modification of operations due to government orders
If your company, its suppliers, and/or clients were forced to socially distance, reduce hours, or limit capacity, then your business could qualify. Even the companies that claimed the Paycheck Protection Program (PPP) loan and had no decline in revenue are eligible for this benefit.
One AV installer, for instance, received refunds worth $149,000 for facing restricted jobsite access due to government mandates and supply chain restrictions that impacted sales.
IRS Memo on Supply Chain Disruption
Despite being such a powerful credit, ERC is also one of the most misunderstood incentives. Some businesses overlooked it due to a lack of knowledge or confusion about how to leverage it; others fall for the tall claims of fly-by-night providers who promote that every business facing supply chain disruption qualifies for millions.
Taking note of this, the IRS clarified in a recent memo that only specific supply chain scenarios qualify.
A company that can demonstrate how a government order fully or partially suspended its supplier’s operations, impacting their own operations, qualifies. A business can claim the ERC only for the quarter wherein a government order suspended its business and its supplier’s business. If that government order was lifted after that quarter, then the business’ eligibility would depend on its ability to show a new order suspending its supplier’s operations.
A business doesn’t qualify if it suffered from supply chain disruptions that did not obstruct regular operations in 2021. Businesses are not eligible for the ERC if they were not subject to any suspension order during 2020 or 2021.
2. R&D Tax Credit
The R&D tax credit is designed to reward companies for making technical enhancements to their products or processes—or, in the case of system integrators, the technical work and experimentation that ensures the ability of multiple systems to communicate with one another, enhancing the efficiency or security of a facility, the quality of an AV experience, or other common system integration needs.
For their technical work done behind a desk or on the actual floor of a facility, integrators can receive substantial financial rewards that often amount to six figures.
This government-supported program is designed to help businesses increase technical jobs in America by encouraging them to invest in innovation through research and development activities. It applies to almost all industries, and integrators can qualify for the work that they are doing every day.
The R&D tax credit is calculated based on wages earned by employees performing qualifying work. The more staff members involved, the higher the potential savings. It can also be claimed at federal and state levels, with more than 40 available state credits.
A good example: An AV and communications integration company claimed R&D credit for $844,000 in federal tax credits. Later, additional state credits were also identified for that company, and the combined federal and state R&D credits nearly doubled to $1.6 million.
Maximize Tax Savings with the Right Partner
The key to maximizing tax savings lies in understanding the right credits for the right business—subject to their specific situation and circumstances.
The R&D Tax Credit and ERC are the best options for businesses like yours to leverage, but they require proper documentation. It’s recommended that you work with a trusted provider to take full advantage of these credits so you can minimize audit risks associated with filing inaccurate returns.
alliantgroup is an NSCA Business Accelerator that helps integrators determine whether they qualify to receive these lucrative tax savings. Its tax experts and professionals have an extensive understanding of and unique expertise in navigating the various federal and state agencies required to prepare claims and effectively and efficiently manage the process. Learn more.