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Top three New Year's tax tips

After the year-end rush to wrap up financial matters, business owners might believe they don't need to revisit tax issues again until filing season. However the start of the year is a critical time for business owners to consider a number of state and local tax issues that can make the year ahead much more successful. By incorporating these few considerations into 2014 business plans, organizations may set themselves up for a more advantageous tax position come filing season.

1. Consider Colorado’s Enterprise Tax Zone credits within your 2014 business plan to ensure your business will meet the requirements. To create new jobs and foster economic development within certain distressed areas of the state, Colorado grants special tax incentives to the companies located within these designated territories. To receive these tax credits, companies must pre-certify prior to any credit-producing activity.

Companies that have long-benefitted from the Enterprise Tax Zone credits should note that Gov. John Hickenlooper recently signed legislation altering the regulations on a number of these credits. The following changes went into effect on Jan. 1:

• The Enterprise Zone Investment Credit deducts 3 percent of the qualified property purchased and used within an enterprise zone from the company’s tax liability. A new cap limits the amount of the credit that may be claimed for any tax year to $750,000 and the carry-forward period has increased to 14 years.
• The Enterprise Zone New Business Employee Credit is available for each new employee hired within the year a business facility is established, prorated by the number of months the employee worked. This credit was increased to $1,100 for each qualified employee.
• The Enterprise Sponsored Health Insurance Credit is available to employers that pay at least 50 percent of the firm’s health insurance plan. For the first two years that a business is located within an enterprise zone, the company now earns a credit of $1,000 per new employee signed under the company plan.
• The Enterprise Zone Qualified Job Training Program is available for all training or education, other than on-the-job training, conducted by the company to improve the skills of employees working predominately within an enterprise zone. This credit was increased to 12 percent of the qualified costs.
• Finally, businesses operating within enterprise zones should be aware that Colorado provides generous sales tax exemptions on certain business purchases.

2. Review your business’ “state footprint.” Better understanding the state tax rules where various business functions take place allows companies to strategically plan which locations make the most fiscal sense when deploying its workforce and operations.

When it comes to filing tax returns, it is imperative that companies keep accurate records of the states in which they conduct business, employ personnel, and hold assets in order to comply with all tax regulations. However, which pieces of an organization are considered taxable may not always be obvious. Pulling operations or inventory into another state’s market triggers filing responsibilities within that state.

For businesses looking to expand in 2014, consider consulting with a tax advisor to narrow down location options and negotiate local incentives. Local counties and cities often offer tax incentives to earn organizations’ business. Pursuing a few location alternatives during the negotiation process allows for direct comparison. 

Additionally, service-based companies should pay particular attention when providing work for out-of-state clients as the tax rules may vary. For example, Colorado holds companies liable for tax payment based on the state in which services are performed. However, Michigan considers the location of the services’ beneficiary when collecting taxes. For instance, a telemarketing agency located in Colorado that conducts a survey on behalf of a company headquartered in Michigan may be liable in both states for 100 percent of the tax amount.

3. Audit the home rule cities relevant to your business. Colorado allows each city to determine its own rules regarding sales tax. Due to these varying regulations, companies should be aware of which pieces are susceptible to sales tax and how the sales tax is collected within each city in which they conduct business. Organizations must pay close attention to the rules governing a given item category. For example, different cities consider “prepared food” to be any food consumed onsite, while others may consider it to be any ready-to-eat food. These local variances can be burdensome for companies. By becoming familiar with the regulations now, businesses can lessen the stress surrounding sales tax compliance efforts.

Colorado business owners should take the time to position themselves for relevant tax opportunities. Of course, not all business decisions revolve around tax issues. Businesses that are informed about which tax regulations and incentives apply to them, however, are equipped for a fiscally healthy 2014 and headed toward a smooth tax season.

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Jennifer Shloss

Jennifer Shloss is a state and local tax manager for the Denver office of Grant Thornton LLP. She can be reached at jennifer.shloss@us.gt.com

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