It is nearly impossible for business owners to keep up with the latest changes to the tax code, offloading much of the responsibility onto CPAs. Every year brings a plethora of tax changes, and the results you deliver depend greatly on what you may (or may not) know about the latest codes.
A hyper-local focus on city, regional, and state tax incentives can help add immense value and unlock substantial gains to clients of all kinds, while at the same time promote the sustainability of your firm in the future. To stay ahead in a highly saturating CPA playing field, here’s the why and how accountants can start to look local during tax season.
Why is a Hyper-Local Focus Important?
Tax credits give businesses the opportunity to minimize state corporate income tax. They can be incredibly impactful and spell the difference between success and failure, especially for startups and small businesses in need of additional cash flow to survive.
Tax credits can enable these companies to take on additional headcount or provide capital back to the business. These tax implications vary on a federal and state level.
For example, what is commonly considered a franchise tax in Texas is an income tax in Georgia. SaaS revenue is subject to sales tax in New York.
In each of these taxes, there seem to be a myriad of tax implications to consider. To keep up with these hyper-local rules and nuances, CPAs must commit to becoming experts in the specific state or jurisdiction for which they’re filing the return.
Regional understanding of potential tax breaks could spell the difference between success or failure, especially for small businesses and startups that depend on every dollar. Lack of regional tax break knowledge can mean the difference between startup success and failure. Here’s a perfect example:
The Dark Side of Lacking Local Knowledge
As the COO and founder of Acuity, I’m proud to live, work, and play in Georgia – recently a business tax-friendly state. A client recently moved their business from Raleigh, North Carolina to Atlanta, securing a spot in one of the buildings just off the Georgia Tech campus.
When tax season rolled around, the company turned to its CPA back in North Carolina for help. Spoiler alert! The CPA did not have local knowledge of critical tax credits and incentives in the Atlanta area.
Georgia rewards job creation by providing up to $4,000 in annual tax savings per job for up to five years for qualifying businesses. After its move to an Atlanta opportunity zone, this company was eligible for a $3,500 tax credit per job it created, which happened to be 10 jobs that year. That comes out to $35,000 per year and potential savings of $175,000 over the five-year span in the form of a state income tax credit or a direct reduction in Georgia payroll taxes.
The same company also missed out on a state research and development tax credit. The federal credit can roughly be estimated at 6.5 percent of qualified research expense.
Most states have unique calculation methodology (in Georgia, it can be up to 10 percent). These savings would have helped this company offset payroll taxes. Ouch!
How to Start Thinking Local
As local, regional, and state tax codes continue to grow in diversity, localizing tax report strategies is critical for client success. While it would be ideal to turn to a platform to provide you with the latest hyper-focused tax credit information, tax software simply can’t keep up. This means there’s some front-end research to be done.
If you are wondering where to start, the best place will be your local or state website. Most states have a website listing all local tax credits.
Other tax credits may be extended on a county government level, requiring deeper hyper-local research. For example, certain states provide additional tax credits for new jobs.
If your clients are adding jobs in a rural or underdeveloped part of the city, odds are someone has passed a state tax credit that may benefit them. If you are wondering if your client may qualify, or want to learn more about your state offerings, check out this great resource.
For a full list of tax implications by state, check out the IRS’s list of state government websites.
The takeaway? Tax credits are meant to serve the job creators, the innovators. With a lack of local knowledge, CPAs are at risk of offering bad tax advice to their clients (via omission of advice) and missing out on multiple state-level tax advantages.
In today’s ever-evolving tax landscape, CPAs must strive to be experts, not just on a federal level, but also in the state and city they work in.
Of course, this is easier said than done at many firms. But for those looking to deliver the best results for clients, switching to a hyper-local focus is, in our opinion, a no-brainer.