Small-business owner Kevin Dickerson was sitting on hundreds of thousands of dollars in tax credits and didn’t even know it.
“We just didn’t have the expertise, and, honestly, we didn’t even know those dollars were out there,” he says.
The Dickerson Group has a hand in several businesses, including Southern Nursing Home Health, which provides critical care, physical therapy and other services. On its CPA’s advice, Southern Nursing recently hired a tax-credit specialist, who found $155,000 worth of credits the nursing company earned for new hires, plus another $44,000 for other Dickerson Group companies.
“You can’t beat that, not in today’s climate,” Dickerson says. “Anything you can add to your bottom line, man, that’s attractive.”
By one oft-cited estimate, small- and medium-sized businesses miss out on more than $4 billion in state and federal tax credits every year, although the U.S. Government Accountability Office says accurate numbers aren’t readily available. Location- and employee-specific credits are common.
But while large companies have staff members or major accounting firms who worry about such things for them, small businesses don’t have that luxury. Hiring someone to look for credits on an hourly basis doesn’t always make sense, unless the business owner knows credits will be found. Some companies will do the work on a contingency basis, which means they don’t get paid unless they find credits for the employer.
“Employers may not know that these credits exist, how to screen employees for eligibility, or how to certify eligible employees,” says Grant Keppel, the national director of Cost Segregation Partners, a consulting firm that specializes in cost segregation and tax credits. There are more than 925 federal, state and local credits available to businesses, but tax credit discovery is a slow, complex process, and the rules often change. As a result, small- and medium-sized businesses seldom participate in the programs, he says.
“I tried to get through to the state of Louisiana to figure out how I could file for credits on three employees that I hired,” says Paul Cuevas, an ex-banker and consultant. “After several weeks of aggravation, I basically gave up.” The state does have economic-development agencies that promote incentives specific to their regions, but there is no single unit at the state and federal level that can help with every credit for which a business might be eligible.
“The small-business guy is left to figure it out on his own,” Cuevas says. “You can’t fault these small businesses for not taking advantage of it.”
Cuevas sensed an opportunity. Since February, he’s held the Louisiana and Mississippi rights for TaxBreak Solutions, marketing its specialized system to track new-hire tax credits for small businesses. He works with about 15 agents, including other former bankers and CPAs, many of whom were already calling on small businesses on a regular basis. Cuevas says businesses with a high turnover rate, like restaurants, can sometimes eliminate, or nearly eliminate, their tax liability for multiple years.
“We have situations where we find more credits than they can even use,” he says.
Chris Casselberry Sr., owner of landscaping firm Corporate Green, learned about the TaxBreak system through CPA Lisa Landaiche, who works with Cuevas. Casselberry took advantage of credits available for new hires from areas affected by 2005’s hurricanes. The credits are worth $2,400 per employee. Casselberry paid a contingency fee for the tax credits captured on old hires; going forward, he’s paying a flat rate per employee hired to check for credits. Casselberry didn’t want to say how much he saved, but he eliminated “a couple years” of his tax liability.
“We kind of knew there was something out there, but we could never find out how or where you do it,” he says. “Every time we go looking for a government grant, it’s like you’ve got to be a Philadelphia lawyer to figure all this out.”
The three most significant, but often overlooked, new-hire tax credits that many small businesses are missing out on, according to Paul Cuevas, regional manager with TaxBreak Solutions:
• Hurricane Katrina credit
Despite the name, this credit applies to employees hired from areas affected by hurricanes Katrina, Rita and Wilma who worked at least 120 hours between Aug. 29, 2005 and Aug. 27, 2009. A business can qualify for up to $2,400 per employee, which can be applied retroactively to taxes paid from 2005 to 2007 or carried forward for up to 20 years.
• Economic zone credits
Can be worth from $1,500 to $3,000 per employee, depending on the area, for hiring in designated low-income zones. None of the zones are in the Baton Rouge area, although they can be found in Orleans and Jefferson parishes and throughout north Louisiana. A Baton Rouge-based business with job sites in one of the zones could qualify if they hire people who live in the zone.
• Work opportunity tax Credits
Can be worth up to $9,000 over two years per hire for employees from certain selected groups, such as ex-prisoners or welfare recipients. An employer has to turn in the necessary paperwork within 28 days of hiring.
