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The $1.9 trillion stimulus bundle just lately enacted by Congress and the Biden Administration has one thing in it for nearly everybody, and IT consultants aren’t any exception. When mixed with the earlier spherical of incentives handed over the last days of the Trump administration, it creates a really engaging set of monetary assets that consultants shouldn’t ignore. Credit score packages, which permit companies to cut back their tax funds, received the largest enhance. These payments are 1000’s of pages lengthy, however I’ve picked out the three most related provisions that IT consultants want to concentrate to this 12 months.

Essentially the most precious credit for tech corporations are payroll-based incentives primarily based on the wages of workers. Most IT consultancies make use of technical employees like engineers, designers and builders, and the usually excessive salaries of these workers can drive essentially the most highly effective tax credit. Moreover, the three incentives outlined beneath will also be mixed to maximise monetary advantages for corporations:

1. The R&D Tax Credit score

The R&D tax credit score is the only largest tax incentive accessible to IT consulting corporations, however in my expertise, most of those companies severely underestimate the potential worth this credit score can present.

As a fast recap, the R&D credit score rewards companies which might be both bettering present or creating new merchandise or processes. Firms can even qualify for the credit score in the event that they develop revolutionary options for his or her shoppers. As a result of the parameters for claiming this incentive are fairly broad, most IT corporations have both championed or participated in qualifying actions, particularly amidst the pandemic.

As an illustration, IT consultants which might be growing on a low-code platform, like Appian or Salesforce, to create customized options for shoppers qualify for the R&D credit score. Likewise, a digital transformation firm that’s migrating a consumer to cloud software program may additionally qualify.

I’m usually stunned, nonetheless, by the extent to which IT consultants underclaim this credit score. It is a wage-based incentive, so it’s attainable that the monetary advisors who’re in command of claiming the credit score for these corporations don’t totally perceive the scope of technical work that qualifies.

To maximise the worth of the credit score, there must be an employee-by-employee evaluation carried out by a technical knowledgeable with the same background to the employees. On the finish of the day, a software program engineer will do a significantly better job of figuring out qualifying actions than an accountant will, and this might imply the distinction between just a few thousand {dollars} in credit or just a few hundred thousand {dollars} in credit for these within the IT trade.

2. Worker Retention Credit score

The Paycheck Safety Program (PPP) was the star of the CARES act when it was first handed early within the pandemic. Nonetheless, the Worker Retention Credit score (ERC), was additionally launched alongside the PPP and allowed companies impacted by the pandemic to assert 1000’s of {dollars} in credit per worker. On the time, the ERC was largely ignored as a result of taxpayers couldn’t declare each the ERC and the PPP. Fortunately, the federal authorities mounted that downside in December, and now taxpayers can declare the ERC along with the PPP, even when a PPP mortgage has been forgiven.

The IRS has dictated two major methods to qualify for the ERC: a discount in gross receipts, or a full or partial shutdown of the enterprise stemming from a governmental order. Notably, the credit score is supposed to be very expansive — even when a enterprise wasn’t affected by an order, they’ll nonetheless qualify if their provide chain and distributors had been affected or in the event that they had been compelled to cut back general companies.

Many IT consultants fared properly throughout the pandemic, however even these corporations can profit from the ERC. In lots of circumstances, gross sales departments had been impacted even for corporations that had been doing properly, notably if gross sales workers had been required to journey. Even when there was solely a short lived disruption for the gross sales division, the agency may nonetheless qualify.

3. Work Alternative Tax Credit score

The Work Alternative Tax Credit score (WOTC) is one other credit score accessible to IT consultancies that rewards companies that rent individuals from focused teams. Its worth is mostly lower than the earlier two credit, however the WOTC will be mixed with the R&D and ERC credit to create vital financial savings. Relying on the worker’s wages and the classification the credit score will be value as much as $9,600 per eligible worker. The eligible goal teams embody veterans, ex-felons, residents of empowerment zones or rural renewal counties, and extra.

With the tax deadline prolonged for this 12 months, there’s extra time for IT consultants to ensure they qualify for these credit and declare the incentives they’ve earned. For my part, maximizing the R&D credit score would be the most useful technique for this trade within the long-term.

Rick White is a former U.S. Congressman and a founding father of the Web Caucus in Congress. He at the moment serves as a member of the Strategic Advisory Board at alliantgroup, a tax-consulting agency primarily based in Houston, Texas, and principal on the Woodbay Group, a consulting agency for begin up corporations in Seattle.