5.11.22 | ERC + ImagiNE: Business Tax Incentives Explained | Recording

5.11.22 | ERC + ImagiNE: Business Tax Incentives Explained | Recording

 

LUTZ BUSINESS INSIGHTS

 

ERC + ImagiNE

ERC + IMAGINE: BUSINESS TAX INCENTIVES EXPLAINED

5.11.22 | RECORDING

Join us for a webinar as we provide updates on Employee Retention Credits (ERC) and the ImagiNE incentive program.

The ERC, developed in response to COVID-19, provides a refundable payroll tax credit on certain employee wages. It aims to help businesses retain top talent amid revenue loss or government shutdowns.

The ImagiNE Nebraska Act is a tax incentive program that encourages high-wage jobs and promotes investment in the state of Nebraska. It can help your business receive sizeable employee payment credits, investment credits, property tax exemptions, and sales tax refunds.

Lutz experts help you understand the qualifications required to receive credits, how to apply, and steps to claim your funds.

Key Takeaways:

  • Updates on Employee Retention Credit
  • Overview of ImagiNE Nebraska Tax Act
  • Explanation of Requirements
  • How to Apply

Seminar Level: general business knowledge and up

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Iowa Income Tax Update + HF2317

Iowa Income Tax Update + HF2317

 

LUTZ BUSINESS INSIGHTS

 

Iowa Income Tax Update + HF2317

iowa income tax update + hf2317

russ smith, tax & consulting director

 

Governor Kim Reynolds signed the House File 2317 into law on March 1, 2022. Most notably, it included income tax rate reductions and exemptions for retirement income and Capital Gains. 

INDIVIDUAL INCOME TAX RATE AND BRACKET CHANGES 

  • 2023 – top rate reduced to 6% (currently 8.53%) 
  • 2024 – top rate reduced to 5.7% 
  • 2025 – top rate reduced to 4.82% 
  • 2026+ – flat tax rate of 3.90% 

RETIREMENT INCOME TAX 

Retirement income for disabled taxpayers and those 55 years or older is exempt beginning in 2023. 

  • Governmental or other pensions or retirement pay, including: 
    • Defined benefit or defined contribution plans 
    • Annuities 
    • IRA’s 
    • Plans managed or contributed to by an employer or by a self-employed person as an employer 
    • Deferred compensation plans or earnings attributable to the deferred compensation plan 

CAPITAL GAINS EXEMPTION  

Capital gains from the sale or exchange of stock in a qualified corporation (beginning in 2023).  

  • One irrevocable lifetime election for employee-owners of qualified corporations. 
  • Employee-owner means an individual who owned the stock for at least ten years and acquired the stock while employed and on account of employment for at least ten cumulative years. 
  • Qualified Corporation – at the time of the first sale for which an election is made, must meet these requirements: 
    • The corporation employed individuals in Iowa for at least ten years. 
    • The corporation has had at least five shareholders for the ten years prior to the first sale for which the election is made. 
    • The corporation has had at last two shareholders or groups of shareholders who are not related for the ten years prior to the first sale for which the election is made. 
  • Exemption phased in over three calendar years: 
    • 2023: 33% exemption 
    • 2024: 66% exemption 
    • 2025+: 100% exemption 

FARM LEASE INCOME TAX EXEMPTION 

The net income received by a retired farmer 55 years or older under a farm tenancy agreement covering real property if the retired farmer held the property for ten years or more and materially participated in farming for ten years or more. 

FARM CAPITAL GAINS INCOME TAX EXEMPTION  

The bill modifies the farm capital gains income exemption on the sale of real property used in a farming business as well as the sale of cattle, horses, and breeding livestock. It also modifies the qualifying time frame for retired farmers to have materially participated in farm operations. 

R&D CREDIT  

Requires the use of the alternative simplified method for IA if that method was used for Federal. It disallows supplies and computer use expenses as qualified expenses. Also, it reduces the credit refundability by 10% per tax year through 2023, with 50% refundability for tax year 2027 and later years. 

OTHER TAX CREDITS  

The bill reduces the refundability of certain tax credits by 5% each year for five years, starting in 2023, resulting in refundability of 75% beginning tax year 2027. Credits included are Assistive Device Tax Credit, Historic Preservation Tax Credit, Redevelopment Tax Credit, Research Activities Tax Credit, and Third-Party Development Tax Credit. 

CORPORATE INCOME TAX RATE REDUCTION  

The potential tax rate decreases depending on corporate income tax revenue in future years. 

QUESTIONS? 

If you have any questions, please contact us, or click here to read related articles. 

ABOUT THE AUTHOR

402.827.2312

rsmith@lutz.us

LINKEDIN

RUSS SMITH + TAX & CONSULTING DIRECTOR

Russ Smith is a Tax & Consulting Director at Lutz with over 20 years of state tax experience. He specializes in state income tax planning and compliance and helps clients minimize state and local taxes through the use of incentives.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Kearney, NE
  • Graduate Studies, University of Nebraska, Lincoln, NE
COMMUNITY SERVICE
  • Douglas County Historical Society, Board Member
  • Douglas County Historical Society Foundation, Board Member

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Nebraska Income Tax Update + LB873

Nebraska Income Tax Update + LB873

 

LUTZ BUSINESS INSIGHTS

 

Nebraska Income Tax Legislation Update

nebraska income tax Update + lb873

russ smith, tax & consulting director

 

Nebraska Governor Pete Ricketts signed Legislative Bill 873 on 4/13/22. The bill intends to lower state income tax rates, phase out income tax for Social Security, and add refundable property tax credits for real estate tax paid to K-12 schools and community colleges. 

INDIVIDUAL INCOME TAX 

Reduces the top individual income tax rate gradually from 2023 through 2027 from the current 6.84% to 5.84%. The top rate kicks in at income over $29,000 (single and married filing separate), $58,000 (married filing joint), $43,000 (head of household), and $15,150 (estates and trusts). The first-rate reduction to 6.64% will begin in tax year 2023. 

CORPORATE INCOME TAX 

Continues the phased-in reduction of the top corporate income tax rate. Cuts rate from current 7.5% to 5.84% by 2027. The top rate applies to income over $100,000. The top tax rate for 2022 will be 7.25%. 

SOCIAL SECURITY INCOME TAX 

Accelerates the phased-in exemption of all Social Security income by tax year 2025. The exemption will be 40% for 2022, 60% for 2023, 80% for 2024, and 100% for 2025 and future years. 

PROPERTY TAX CREDIT 

Ensures the Property Tax Credit does not fall below its current amount of $548 million, increasing the credit to $560.7 million for tax year 2023, with an allowable growth percentage of up to 5% beginning in tax year 2024. The Property Tax Credit is the refundable income tax credit for real estate tax paid to K-12 schools. The 2021 Property Tax Credit percentage is 25.3%. Future credit will be determined by the Department of Revenue, but it is expected that the credit rate will be about the same for 2022, with slight increases in future years. 

COMMUNITY COLLEGE PROPERTY TAX CREDIT 

Creates a Property Tax Credit for real estate taxes paid to a community college. $50 million of credits will be available for 2022, with annual increases to $195 million by 2026. After 2026, the annual amount will increase by the allowable growth percentage. The community college Property Tax Credit will be a refundable income tax credit, similar to the K-12 Property Tax Credit. 

QUESTIONS? 

If you have any questions, please contact us, or click here to read related articles. 

ABOUT THE AUTHOR

402.827.2312

rsmith@lutz.us

LINKEDIN

RUSS SMITH + TAX & CONSULTING DIRECTOR

Russ Smith is a Tax & Consulting Director at Lutz with over 20 years of state tax experience. He specializes in state income tax planning and compliance and helps clients minimize state and local taxes through the use of incentives.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Kearney, NE
  • Graduate Studies, University of Nebraska, Lincoln, NE
COMMUNITY SERVICE
  • Douglas County Historical Society, Board Member
  • Douglas County Historical Society Foundation, Board Member

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ImagiNE Nebraska Act + Benefits, Application Process & Examples

ImagiNE Nebraska Act + Benefits, Application Process & Examples

 

LUTZ BUSINESS INSIGHTS

 

ImagiNE Nebraska Act

imagine nebraska act + benefits, application process & examples

russ smith, tax & consulting director

 

The ImagiNE Nebraska Act (“ImagiNE Nebraska”) replaced the Nebraska Advantage Act (“LB312”) on January 1, 2021. ImagiNE Nebraska is Nebraska’s primary incentives program, designed to encourage the expansion and relocation of businesses in Nebraska.

 

Eligibility

Only certain types of businesses are eligible for ImagiNE Nebraska, and eligibility is determined on a location-by-location basis. To be a qualified location, a majority of the business activities at a location (based on a headcount analysis) must be within one or more of the eligible NAICS codes or specified activities.

See the list of “Qualified Location” NAICS codes and specified activities HERE.

Project employees must receive a certain minimum average wage (varies by application tier and by application year) and must also be offered a sufficient package of benefits.

 

Application Levels

Each application level has different requirements and benefits, and some have different location or industry requirements.

Application Levels Jobs Required Investment
Economic Redevelopment Areas 5 FTE $250,000 – $1 Million
Manufacturing Growth and Expansion (Rural) 5 FTE $1 Million
Manufacturing Growth and Expansion (Urban) 10 FTE $1 Million
Growth and Expansion 10 FTE $1 Million
Quality Jobs 20 FTE None
Quality Jobs Investment 30 FTE $5 Million
Mega-Project 250 FTE $250 Million
Modernization N/A $50 Million

Investment means the value of qualified property incorporated into or used at a qualified location. For qualified property leased from an unrelated person, the average net annual rent is multiplied by the number of years of the lease, not to exceed ten (the total value of the lease is recognized in the first year). Qualified property is any tangible property subject to depreciation, amortization, or other recovery under the IRC or the components of such property located at a qualified location. Qualified property does not include aircraft, barges, motor vehicles, railroad rolling stock, watercraft, or property that is rented by the taxpayer to another person.

All application tiers allow up to five calendar years to reach the required levels, seven years to earn credits, and a three-year credit carryover period.

 

Benefits & Usage

The benefits of ImagiNE Nebraska vary by application tier but can include the following:

  • Investment tax credits;
  • Wage credits;
  • Exemptions/refunds of sales/use tax paid on purchases at the project;
  • Personal property tax exemptions.

Tax credits can be applied against these taxes:

  • Income tax;
  • New employee Nebraska income tax withholding tax (Wage Credits only);
  • Sales/use tax paid on purchases at the project;

Credits can also be used for repayment or reimbursement of the following:

  • Infrastructure or Job Training Loans through the ImagiNE Revolving Loan Program;
  • Employee recruitment and retention costs (including marketing, relocation, search firm fees, student loans, tuition, and down payment on primary residence in Nebraska);
  • New employee training costs;
  • Employer-sponsored childcare expenses.

 

Application Process

An application is required for ImagiNE Nebraska. The application date establishes the beginning date for recognizing new investment. The application date also establishes the base year for employment purposes. Base year employment is the number of full-time equivalent employees in the calendar year prior to the application date. Employment growth in future years is measured against base year employment.

Applications are filed with the Nebraska Department of Economic Development, with an application fee of $5,000.

 

Annual Reporting

Each year, a form summarizing the new jobs and investment is required to be filed with the income tax return. In the year the required levels of new jobs and investment are reached, credits earned can immediately be used without waiting for an audit. Benefits can continue to be earned for the next six years, provided the required levels of jobs and investment are maintained. The Department of Revenue may conduct an audit at a later date to verify the accuracy of the information reported and benefits claimed.

 

EXAMPLES

“Economic Redevelopment Area”

Small office located in an Economic Redevelopment Area

Investment: $250,000 within 5 years (office equipment and remodel)

Employment = 5 new full-time employees in 5 years, average Medicare hourly wage $17.31

Estimated Benefits:

  • Investment Credit = $10,000
  • Wage Credit = $75,610
  • Total Benefits = $85,610

 

“Manufacturing Growth & Expansion – Rural”

Small manufacturer located outside the Omaha or Lincoln area

Investment: $1 million within 5 years (equipment and a new building lease)

Employment = 5 new full-time employees in 5 years, average Medicare hourly wage $17.31

Estimated Benefits:

  • Investment Credit = $40,000
  • Wage Credit = $75,610
  • Total Benefits = $115,610

 

“Manufacturing Growth & Expansion – Urban

Small manufacturer located in the Omaha or Lincoln area

Investment: $1 million within 5 years (equipment and a new building lease)

Employment = 10 new full-time employees in 5 years, average Medicare hourly wage $18.54

Estimated Benefits:

  • Investment Credit = $40,000
  • Wage Credit = $107,977
  • Total Benefits = $147,977

 

“Growth & Expansion” – Small Size Headquarters

Small headquarters office anywhere in Nebraska

Investment: $1 million within 5 years (new office lease, office equipment)

Employment = 10 new full-time office employees in 5 years, average Medicare hourly wage $22.25

Estimated Benefits:

  • Investment Credit = $40,000
  • Wage Credit = $129,584
  • Total Benefits = $169,584

 

“Quality Jobs” – Medium Size Headquarters

Medium size headquarters office located anywhere in Nebraska

Investment: No new investment

Employment = 20 new full-time office employees in 5 years, average Medicare hourly wage $24.73

Estimated Benefits:

  • Investment Credit = $0
  • Wage Credit = $360,069
  • Total Benefits = $360,069

 

“Quality Jobs Investment” – Large Manufacturer/Processor

Manufacturing/processing facility located anywhere in Nebraska

Investment:  $3 million building expansion, $2 million equipment within 5 years

Employment = 30 new full-time office employees in 5 years, average Medicare hourly wage $24.73

Estimated Benefits:

  • Investment Credit = $350,000
  • Wage Credit = $540,103
  • Sale/Use Refunds = $99,523
  • Total Benefits = $989,629  (plus potential Property Tax exemptions)

 

“Quality Jobs Investment” – Large Headquarters

Headquarters located anywhere in Nebraska

Investment:  $10 million building purchase, $2 million remodel, $2 million furnishings & equipment

Employment = 100 new full-time office employees in 5 years, average Medicare hourly wage $37.09

Estimated Benefits:

  • Investment Credit = $980,000
  • Wage Credit = $3,780,213
  • Sale/Use Refunds = $206,531
  • Total Benefits = $4,966,564

 

If you have any questions on the ImagiNE Nebraska Act, please contact us. You can also learn more by visiting https://www.lutz.us/imagine-nebraska/

ABOUT THE AUTHOR

402.827.2312

rsmith@lutz.us

LINKEDIN

RUSS SMITH + TAX & CONSULTING DIRECTOR

Russ Smith is a Tax & Consulting Director at Lutz with over 20 years of state tax experience. He specializes in state income tax planning and compliance and helps clients minimize state and local taxes through the use of incentives.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Kearney, NE
  • Graduate Studies, University of Nebraska, Lincoln, NE
COMMUNITY SERVICE
  • Douglas County Historical Society, Board Member
  • Douglas County Historical Society Foundation, Board Member

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Nebraska Capital Gains Exclusion

Nebraska Capital Gains Exclusion

 

LUTZ BUSINESS INSIGHTS

 

NEBRASKA CAPITAL GAINS EXCLUSION

nebraska capital gains exclusion

stacy watson, tax & consulting shareholder

 

Nebraska’s special capital gains exclusion was adopted in 1987 as part of the Employment and Investment Growth Act. This allows individual taxpayers to make a one-time election to exclude Nebraska income capital gains from the sale of the stock of a qualified corporation.

Definitions

A qualified corporation is defined at the time of the first sale or exchange for which an election is made:

  • Have at least five shareholders; and
  • No more than 90% of the capital stock can be held by any single shareholder or group of related shareholders; and
  • Have been doing business in Nebraska for at least three years

Qualified stock acquired by the individual must meet the following requirements:

  • The shares were acquired on account of employment by the corporation; or
  • The shares were acquired while employed by the corporation

Planning

Often a family-owned business does not meet the requirements above. If the business wants to sell and take advantage of the special capital gains exclusion, planning techniques are available. Since 1987, accountants, in conjunction with the business and their attorneys, have been using these planning techniques, often challenged by the Nebraska Department of Revenue on the grounds of “economic substance”. 

In 2008, the uncertainty regarding this pre-transaction planning was settled by the Nebraska Supreme Court in Stewart v. Nebraska Dept. of Rev. In Stewart, the court ruled that the federal “economic substance” and “sham transaction” doctrines do not apply in determining whether a corporation is a qualified corporation for purposes of Nebraska’s special capital gains exclusion. This ruling effectively solidified the pre-transaction planning.

If you are a Nebraska business considering a sale, contact us for professional tax planning assistance. Done properly, you could earn up to 6.84% in potential tax savings. You can also learn more about our State and Local Tax services here.

ABOUT THE AUTHOR

Stacy Watson

402.827.2048

swatson@lutz.us

STACY WATSON + TAX & CONSULTING SHAREHOLDER

Stacy Watson is a Tax and Consulting Shareholder at Lutz with over 20 years of experience in taxation. She has in-depth experience in providing state and local, income, franchise, sales, use and escheat taxes.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
EDUCATIONAL BACKGROUND
  • BSBA in Accounting, Creighton University, Omaha, NE
COMMUNITY SERVICE
  • Junior Achievement Heartland Family Services, Past Member
  • St. Stephen the Martyr, Various Boards

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Common Sales Tax Mistakes and NE Update

Common Sales Tax Mistakes and NE Update

 

LUTZ BUSINESS INSIGHTS

 

Sales Tax

common sales tax mistakes and ne update

CAITLIN EVERS, SENIOR ACCOUNTANT

 

With the new year, now is a great time to review your sales tax to avoid common mistakes. Below are four things you should check regularly to ensure you comply with state regulations.

1. Review Your Local Tax Rates

Nebraska updates local tax rates each quarter. If you missed an update, you could potentially be charging the wrong rate to your customers and must cover the variance yourself on your next filing. You can stay up to date with tax rate changes through the Nebraska Department of Revenue’s website.

2. Verify Invoices

Set aside time to review purchase invoices to ensure you paid sales tax properly. Any invoice without sales tax should be reviewed further to determine if use tax needs to be remitted. If so, report those invoices on your next filing. If you are unsure about the taxability of an item, it is important that you reach out to your accountant for assistance.

3. Think About Changes in Your Business

Did you add or change locations? Add a service line? Register in a new state? All these changes, and many more, have sales tax implications to consider. Sales tax can get complicated when considering location since there are different rules for each state. Be sure to consult with your accountant to ensure you are reporting properly.

4. Understand Sales Tax Law Changes

Lastly, every year Nebraska changes something within the sales tax law. Recently, these three items changed most:

  • The sale/lease/rental of and the storage/use/other consumption of residential water services is now exempt.
  • Gross income received from leasing/using towers and other structures used in conjunction with providing internet access services, agricultural GPS locating services, or FCC license over-the-air radio and television broadcasting is no longer included in the definition of gross receipts.
  • Sales of catalysts, chemicals, and materials used in manufacturing ethyl alcohol and its coproducts are exempt.

In summary, sales and use tax can be challenging to manage, but doing so properly will pay off in the long run. Be sure to utilize your accountant. They follow tax regulations regularly and can ensure your business remains compliant. If you have questions or want to discuss your sales tax situation further, please contact us. You can also learn more about our state and local tax services by visiting our website or reading our blog.

ABOUT THE AUTHOR

402.827.2318

cevers@lutz.us

LINKEDIN

CAITLIN EVERS + SENIOR ACCOUNTANT

Caitlin Evers is a Senior Accountant at Lutz with over seven years of experience in taxation. She specializes in state and local tax matters including sales and use tax, tax incentives, and personal property tax.

AREAS OF FOCUS
  • State & Local Tax
  • Sales & Use Tax
  • Sales Tax Audit
  • Tax Incentives
  • Personal Property Tax
EDUCATIONAL BACKGROUND
  • BA in Accounting, Buena Vista University, Storm Lake, IA
  • AA in Business, Iowa Western Community College, Council Bluffs, IA
COMMUNITY SERVICE
  • Whispering Cedars Baptist Camp, Volunteer

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