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Summing It Up

Keeping you ahead of the curve with timely news & updates.


The Research & Development Credit: Do Any of Your Activities Qualify?

It’s all about the science of innovation, no matter what your business does.

R&D Tax Credit - Buffalo CPA FirmThe Research and Development (R&D) Tax Credit has been in the news a lot lately, especially because it was made a permanent part of the tax code in a long awaited move by Congress. Until that action, the credit was included as part of a group of provisions known as “extenders” that required frequent acts of Congress to keep them available to taxpayers. As a matter of policy this is significant and may suggest a wider acceptance by the IRS of bonafide R&D credit claims. Given this newfound reliability, it’s worth a look to see if any of your business’ activities might qualify for the credit.

New call-to-actionIn short, costs related to any activity that uses a technical discipline to improve a product or process may qualify for the R&D credit. The law requires that the taxpayer use some form of hard science principle to make throughput faster and/or more efficient and that there be some doubt as to the outcome. The credit is frequently used by taxpayers to offset the costs of research designed to improve their products or certain processes.

In many cases, architectural and engineering firms may overlook activities that could qualify for the credit and reduce their tax obligation. For instance, say a cloud services provider engages an architect and an engineer to design a more energy efficient server farm. Some of their costs related to the project, notably wages, could qualify. Also, if the architect designs and tests new floor plans and wall layouts in order to improve airflow, it may be able to claim the credit for costs related to that work.

In addition, (1) software design costs to improve or allow for third party interfacing and (2) costs associated with developing internal use business software that is highly innovative, may also be eligible for the credit.

Architectural/engineering/construction costs that should be evaluated for potential R&D credit benefits include:

  • Green building design
  • Energy efficiency innovation
  • Structural engineering
  • Experimenting with materials
  • HVAC/plumbing/electrical system design for increased efficiencies
  • High-tech equipment/manufacturing installation and design improvements

New call-to-actionIf your business engages in activities like these, you should discuss your eligibility for the R&D credit with a Freed Maxick professional familiar with its requirements. As long as the research is based on hard science and the outcome is not certain, you may qualify for significant tax savings.

For more insight, observations and guidance on the R&D Tax Credit, visit our Freed Maxick Guide to the Federal Research and Development Tax Credit webpage.

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R&D Tax Credits—New Opportunities for Taxpayers

Manufacturers will also benefit from expanded R&D tax credit benefits.

New call-to-actionFederal tax rules have expanded in a manner that allows more activities to qualify for the research and development (R&D) tax credit and the taxes the credit can be used to offset.

More benefit from the credit means more cash available to manufacturers.

Key highlights from the R&D Credit expansion:

  • The Credit Is Now Permanent.
  • Eligible Small Businesses Can Use the Credit to Offset Alternative Minimum Tax.
  • Qualified Start-up Businesses Can Use the Credit to Offset FICA Tax.
  • IRS Noted Increasing Importance of Internal Use Software.
  • Website Design Costs for Third Party Interface.

R&D Credit for Manufacturers - Buffalo CPA For details—including examples of R&D activities, and specific New York State opportunities—download the full article from May's edition of The Bottom Line, co-authored by Freed Maxick CPAs and Tax Practice Directors, Samuel C. DiSalvo, CPA and Don L. Warrant, CPA.

Manufacturers conducting research activities should review their eligibility for federal and state level R&D credits. It is not uncommon for manufacturers to miss opportunities. For help minimizing or lowering your tax burden, contact us.

For more insight, observations and guidance on the R&D Tax Credit, visit our Freed Maxick Guide to the Federal Research and Development Tax Credit webpage.

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New Opportunities for the Research and Development Tax Credit


R&D Tax Credits - Buffalo Rochester NYIn 2015, two new sets of published tax rules provided several favorable developments for U.S. taxpayers claiming the research and development (R&D) credits. Many taxpayers, including for example those who developed software interface for third parties to engage in business through the internet, could benefit from these rules.

Proposed treasury regulations, released on January 16, 2015, clarified the types of activities for developing internal use software (IUS) that are eligible for the credit. In addition, the “Protecting Americans from Tax Hikes” Act (PATH Act) enacted on December 18, 2015 established laws that promoted the ability of most taxpayers, including start-up businesses, to claim the credit.

Under the PATH Act, the following provisions were enacted into law:

  • The Credit is Now Permanent. The R&D credit, which had expired for amounts paid or incurred after December 31, 2014, was retroactively reinstated and made permanent. Fiscal year taxpayers whose tax year ended in 2015 might want to file amended returns to claim the credit for amounts paid or incurred on or after January 1, 2015, and before the end of their fiscal year.

  • Certain Small Businesses Can Use the Credit to Offset Alternative Minimum Tax. Beginning with the 2016 tax year, eligible small businesses (ESB) and their owners can claim the R&D credit against the alternative minimum tax liability. An ESB includes partnerships, sole proprietorships, and privately held corporations whose average annual gross receipts for the three-tax-year period preceding the tax year for claiming the credit does not exceed $50 million.

    R&D credits determined for a partnership or S corporation are not treated as ESB R&D credits by any partner or shareholder unless that partner or shareholder also meets the gross receipts test for the tax year in which the credits are claimed.

  • Certain Small Businesses Can Use the Credit to Offset Payroll Tax. Beginning with the 2016 tax year, a qualified small business (QSB) can elect to use the R&D credit against the employer’s old-age, survivors and disability insurance liability (i.e., FICA taxes). The election can be made for up to five tax years.

    The R&D credit is allowed to offset payroll taxes for the first calendar quarter which begins after the date on which the taxpayer files their tax return with the election. A QSB doesn’t include tax exempt organizations.
    New call-to-action
    Generally, the portion of the credit eligible to offset payroll tax is limited to the lesser of $250,000, the current year credit, or for regular corporations, the amount of the credit carryforward from the tax year determined without regard to the election.

    The credit does not reduce the amount of the FICA payroll expenditure otherwise allowed as a deduction.

    Generally, a QSB is a company that has less than $5 million in gross receipts for the current tax year and no gross receipts for any tax year before the five tax year period ending with the current tax year.

The proposed regulations on internal use software included the following guidance:

  • IRS Noted the Increasing Importance of Computer Software for Businesses. The government explicitly narrowed the application of the IUS rules to general and administrative (backroom) functions. Activities associated with IUS have a much higher threshold and by limiting their application this effectively expanded the software activities eligible for the credit.

  • Website Design Costs. Many businesses develop websites to interface with third parties which may qualify for the credit. The IRS acknowledged that certain of these costs were never subject to the much more narrow IUS rules. As a result, taxpayers may have an opportunity to claim more credit. They should review their web design/third party interface costs for prior open years and file amended returns if they determine these costs were eligible for credit under the standard, less restrictive R&D credit rules.

For more insight, observations and guidance on the R&D Tax Credit, visit our Freed Maxick Guide to the Federal Research and Development Tax Credit webpage.

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On Your Mark- Get Set- Start Up NY!

The Start Up NY Program, per the legislation, is ready for its long awaited unveiling. The program will help foster entrepreneurialism and job creation on a large scale through tax free communities across New York State; with concentrated focus in Upstate NY.

The goal of this program is to bring businesses and jobs to the New York State region, helping to foster growth and innovation.  Participating tax free communities include college campuses and Universities.

SUNY community college and 4-year college/University can establish a tax-free community using:

  • Vacant land on the SUNY campus (for every campus outside of New York City)

  • Vacant space in buildings on the SUNY campus (for every campus outside of NYC)

  • Any business incubator with a bona fide affiliation to the campus, university or college, and

  • Up to 200,000 square feet within one mile of a campus (for every campus north or west of Westchester County).

Private Colleges/Universities: The program also provides 3 million square feet of tax-free areas primarily dedicated to private colleges and universities on land north of Westchester County, to be allocated by the START-UP NY Program Board (consisting of three members with significant academic based entrepreneurship experience) in a manner that ensures regional balance and balance among eligible rural, urban and suburban areas in the State.

  • For private colleges and Universities north of Westchester County, the tax-free areas can include vacant land and vacant space on- or off-campus, as well as any business incubator with a bona fide affiliation to the campus, university or college.

  • Of these 3 million square feet, 75,000 square feet will be allocated for each of the following: Nassau County, Suffolk County, Westchester County, and the boroughs of Brooklyn, the Bronx, Manhattan, Queens and Staten Island. Private colleges and universities in New York City and Westchester, Suffolk and Nassau Counties, as well as SUNY and CUNY campuses not specifically designated, may apply to sponsor these tax-free areas. Once the 75,000 square foot cap is reached in these counties and boroughs, the board may designate up to an additional 75,000 square feet in each. Therefore, a potential of 150,000 square feet of space will be available in these counties and boroughs.

20 State Properties: In addition, the 3-member board can also designate up to 20 strategic State assets as tax-free communities. These must be State-owned vacant land, State-owned vacant facilities or State-owned facilities that are in the process of closing and becoming vacant. Each will be affiliated with a SUNY, CUNY or independent college or university to attract new employers and new jobs and transform the site into a regional economic engine.

In order for a business to be eligible and locate within a START-UP NY tax-free community, a business will need to be aligned with or further the academic mission of the campus, college or university sponsoring the tax-free community. Businesses participating in the program will need to have positive community and economic benefits; create and maintain net new jobs in order to participate, be a company from out of state that is relocating to NYS, or the expansion of an already existing NYS company- as long as it can demonstrate that it is creating new jobs and not simply moving “existing” jobs.

In addition, New York State start-ups "created" from New York State incubators will be eligible to enter tax-free communities and be eligible for the benefits under the program

Participating companies in this program will not pay any business, corporate, sales and/or property taxes for 10 years. Employees with participating companies will not pay income taxes for the first five years, after which they will pay partial income tax based on wage income for the remaining five years. 

This program will also impact the Excelsior Jobs Program, a state initiative that provides tax credits to businesses. Changes to the program include reducing, by half, the job creation requirements for businesses receiving tax credits through the Excelsior Jobs program; amended as follows:

  • Manufacturing – 10 net new jobs (originally 25)

  • Agriculture – 5 net new jobs (originally 10)

  • Financial service data center or financial services customer back office operation – 50 net new jobs (originally 100)

  • Scientific research and development – 5 net new jobs (originally 10)

  • Software development – 5 net new jobs (originally 10)

  • Back office operations – 50 net new jobs (originally 150)

  • Distribution center – 75 net new jobs (originally 150)  - this category was previously combined with back office

  • Targeted industry that retains 25 full-time jobs (originally 50) or a manufacturer retaining at least 10 full-time jobs (new provision) with a cost benefit ratio of 10:1.

In addition, a pro-rated reduction in the tax credit was created in the event that the minimum job threshold is achieved and new job creation is within 75% of the net new job creation goal.

For more information on the Excelsior Jobs Program, please visit our Excelsior Jobs page.

When it comes to taxes, Freed Maxick CPAs is different than most accounting firms in Western New York. What matters to you matters to us; giving you the most up to date information and legislative changes that may affect you and help you respond in a timely way. We serve all 50 states. Contact us today.

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Tax Update

FASB reaches Consensus and Ratifies EITF Issue No. 13-C

On June 26, 2013 the Financial Accounting Standards Board effectively ratified the guidance provided by the Emerging Tax Force Issue No. 13-C. The following is a summary of the consensus:

  • Unrecognized tax benefits should be netted against tax losses or credit carryforwards from the same jurisdiction that could be utilized to offset the UTB.  The UTB would reduce the deferred tax asset established for these losses or credits and would not be recorded as a separate liability.

  • The new standard requires prospective adoption but allows optional retrospective adoption (for all periods presented).

  • For public companies, the standard must be adopted in years beginning after December 15, 2013 (and in interim periods).

  • For private companies the standard must be adopted in years beginning after December 15, 2014 (and in interim periods).

  • No new disclosures are required. However, if the gross amount of the loss or credit (i.e. the amount listed on the income tax returns as-filed) is disclosed, then further explanation may be needed to explain the difference on the returns versus the amount in the financial statements.

  • At this time, it appears as if the SEC requirements for the disclosure of UTBs will not change. Therefore, the gross amount of UTBs would still appear in the footnote disclosure.

  • It will still be important to continue to track the UTBs. For example, there could be an adjustment to the UTB presentation if the position on the UTB changes, or if the loss or credit carryforwards are used. Similarly, if the loss or credit has a full valuation allowance against it, then the VA could change as well if the UTB is no longer necessary. 

When it comes to taxes, Freed Maxick CPAs is different than most accounting firms in Western New York. To us, tax time is all the time. We’re sticklers about deadlines and compliance, but our larger goal is tax management. So we keep a year-round eye on federal, state and local tax laws, including those pending. We alert you to any changes that may affect you and help you respond in a timely way.

We have no doubt that we bring a level of in-house tax expertise second to none in Upstate New York. We have the experience and resources necessary to resolve all your tax issues no matter what the complexity, including:

ASC 740
Canadian Services
Capitalization vs. Repair 
Cost Segregation Services
Foreign Bank Account Report Compliance
IC-DISC
International Tax Services

New York (NY) State Excelsior Jobs Program
Personal Tax Services
Research & Development (R&D) Tax Credits
State and Local Tax Services
State Tax Analysis & Resolution
Tax Credits
Tax Planning and Consulting
Transfer Pricing Analysis – Study
Tax Planning and Consulting

CONTACT US Freed Maxick CPAs is Western and Upstate New York’s (NY) largest public accounting firm and a Top 100 firm in the U.S. Freed Maxick provides audit, tax and consulting services to closely-held businesses, public (SEC) companies, not-for-profits and governmental entities in Buffalo, Rochester, Syracuse, Albany and NYC, New York.

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New York State Solar Power on The Rise!


By: Jeffery T. Zawada, CPA

A few years ago, talk of harnessing energy for commercial or residential sustainability didn’t seem practical. With no replicable models for doing community based energy projects or investments, local development didn’t seem thinkable. But with recent opportunities in community solar, crowdfunding and R&D, there has been a surge in commercial and residential development and investment.

What are other States Doing?

In 2012, California-based company, Solar Mosaic, launched their first community solar investment project, allowing 51 California investors to earn 6.38% returns for investing in a 47 kilowatt solar array on the roof of the Youth Partnership in Oakland. Their subsequent 235 KW project ups the ante; opening up to regular folks in California and New York (and accredited investors in all 50 states). 

The Mosaic model turns community solar into a simple investment, letting prospective investors select a particular Mosaic project to invest in, with significantly higher returns than parking money in a U.S. Treasury or savings account.  For now, it’s limited to broad participation in just two states, New York and California. This is just one example of how solar companies are expanding the reach of solar energy output.

What is New York Doing?
Governor Cuomo, in his 2013 State of the State Address, announced the Charge New York Program; making NYS part of a clean tech economy. Due to the large amount of money NY is investing in panel installations for home and business; various companies in New York offer incentives and tax credits for both residential and commercial businesses looking to recoup some of the costs.

Companies like New York State Energy Research and Development Authority (NYSERDA) offer many state incentives and credits for commercial and residential builds.

  • NYSERDA Solar PV Program Incentives- Saves 40-70% off the purchase cost and install on a solar electric system by combining this program with other New York Energy SMART programs;

  • The NYSERDA Solar Thermal Program Incentive offers both residential and commercial 15-20% off the installed cost of an ST system.

On the state and federal level, NY offers tax credits and exemptions for various solar installations. Some of these include:

  • The NYS Solar Credit:  Is a 25% credit of the total installation cost. You have to file tax form IT-255 to receive the credit. Be mindful; there’s a cap of $5,000 on this. If you are installing a 5kw system, you’ll be due back $5,000 from the state.

  • The federal solar tax credit: Allows for a 30% solar installation tax credit. This credit differs slightly from NY state credits. You need to calculate your expenses after rebates. For example- on a hypothetical 5kw system priced at $25,000, you can expect back $4,875 (this is by taking the $25,000, subtracting the state solar power rebate of $8,750 to arrive at $16,250. Then take your 30% and you’ll get $4,875).

  • The NYS solar tax exemption: for the addition of solar panels to your home; giving an exemption from property tax increases, even though you’ll be adding roughly 20 times your annual electricity bill savings to your property value.

Still unsure what renewable energy credits or incentives you qualify for? Freed Maxick can help you figure it out. Contact us to connect with our experts, or call us at 716-847-2651.

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