Making the most of available tax credits is a key component in any plan for minimizing tax liabilities. Remember, tax credits are much more valuable than deductions because they reduce the amount of tax owed on a dollar-for-dollar basis. Did you know that Virginia has numerous tax credits in place to help their residents and business owners save money? Unfortunately, these tax credits are often overlooked and many taxpayers are not taking full advantage of the potential tax savings. Below are just a few of the Virginia tax credits available that will help you to be better prepared for next filing season.
Neighborhood Assistance Act Credit
The purpose of the Neighborhood Assistance Program (NAP) is to encourage businesses, trusts, and individuals to make donations to approved 501 (c)(3)(4) organizations for the benefit of low-income persons. In return for their contributions, businesses, trusts, and individuals may receive tax credits up to 65 percent of the donation that may be applied against their state income tax liability.
To qualify, individuals must donate at least $500, while a trust or business must donate at least $616 per taxable year. A NAP credit is non-refundable and non-transferable. Excess donor credits, if applicable, may be carried forward for the next 5 taxable years.
Green Job Creation Tax Credit
The Green Job Creation Tax Credit allows a $500 income tax credit for the creation of a “green” job paying an annual salary of $50,000 or more for taxable years beginning on and after Jan. 1, 2010 but before Jan. 1, 2021. Each taxpayer is allowed a credit for up to 350 new green jobs.
In order to qualify for the tax credit, the taxpayer must have created the green job and filled it during the taxable year in which the credit is claimed. The credit is allowed for the taxable year in which the job has been filled for at least 1 year and for each of the 4 succeeding taxable years provided the job is continuously filled during the respective taxable year.
The Form GJC and any supporting documents must be completed and sent to the Virginia Department of Taxation at least 90 days prior to the due date of your return. Any unused credits may be carried over for 5 taxable years.
Qualified Equity and Subordinated Debt Investments Credit
This credit is available to individual and fiduciary taxpayers making a “qualified investment” in the form of equity or subordinated debt in a pre-qualified small business venture.
Qualified investment means a cash investment in a qualified business in the form of equity or subordinated debt; however, an investment will not be qualified if the taxpayer who holds an investment, or any of the taxpayer’s family members, or any entity affiliated with the taxpayer, receives or has received compensation from the qualified business in exchange for services provided to the business as an employee, officer, director, manager, or independent contractor within 1 year before or after the date of investment.
Equity means commons stock or preferred stock, regardless of class or series, of a corporation; a partnership interest in a limited partnership; or a membership interest in a limited liability company, which is not required or subject to an option on the part of the taxpayer to be redeemed by the issuer within 3 years from the date of issuance. No equity investment will qualify for this credit if it is required to be redeemed or subject to an option to be redeemed by the issuer within 3 years of the date of issuance.
Subordinated debt means indebtedness of a corporation, general or limited partnership, or limited liability company that by its terms required no repayment of principal for the first 3 years after issuance; is not guaranteed by any other person or secured by any assets of the issuer or any other person; and is subordinated to all indebtedness and obligations of the issuer to national or state-chartered banking or savings and loan institutions.
- A qualified business means a business which:
- Has annual gross revenues of no more than $3 million in its most recent fiscal yea
- Has its principal office or facility in Virgini
- Is engaged in business primarily in or does substantially all of its production in Virginia
- Has not obtained during its existence more than $3 million in aggregate gross cash proceeds from the issuance of its equity or debt investments (not including commercial loans from chartered banking or savings and loan institutions)
- Is primarily engaged, or is primarily organized to engage, in the fields of advanced computing, advanced materials, advanced manufacturing, agricultural technologies, biotechnology, electronic device technology, energy, environmental technology, information technology, medical device technology, nanotechnology, or any similar technology related field determined by regulation by Virginia Tax to fall under purview of this section
The credit is equal to 50% of the qualified business investments made during the taxable year. If total annual requests for the credit exceed $5 million for the tax year, the credit will be prorated for each taxpayer. The credit a taxpayer may claim per taxable year may not exceed $50,000 or the income tax liability on that year’s return, whichever is less. The credit is nonrefundable. Unused credits may be carried forward 15 years. Businesses must file Form QBA by Dec. 31 of the year that they request qualification.
Land Preservation Credit
The Land Preservation Tax Credit is an income tax credit of 40% of the value of land located in Virginia which is conveyed by taxpayers to a public or private agency for historical or conservation preservation, agricultural use, forest use, open space, and/or natural resource conservation. The conveyance must be in perpetuity.
The amount of the credit is based on 40% of the fair market value of the donation as determined by a qualified appraiser in a qualified appraisal as defined by federal law and IRS regulations governing charitable contributions.
Virginia Tax is authorized to issue no more than $75 million in Land Preservation Tax Credits. The credits are issued on a “first-come, first-served basis” until the cap is reached.
The amount of the credit that may be claimed by each taxpayer shall not exceed $20,000 for taxable years 2018 and 2019 and $50,000 for taxable year 2020 and thereafter.
Any taxpayer issued a tax credit by Virginia Tax shall be allowed to use such credits for his or its taxable year beginning in the calendar year of issuance and for the succeeding 10 consecutive tax years for any unused credit. There could be exceptions to this.
Taxpayers may also transfer unused credits for use by another taxpayer on Virginia income tax returns.
Effective July 1, 2015, all LPC applications must be filed on or before Dec. 31 of the calendar year following the recorded year of the donation. The postmark will determine the date of filing and the effective year of the LPC credit. Example: A complete application postmarked on Jan. 1, 2018 will be issued a 2018 credit as credits are available. A complete application postmarked Dec. 31, 2017 will be issued a 2017 credit.
Historic Rehabilitation Credit
An individual, estate, trust, or corporation incurring eligible expenses in the rehabilitation of a certified historic structure is entitled to claim a credit against their respective taxes. The credit is equal to 25% of rehabilitation expenses for projects completed in 2000 and thereafter. For taxable years beginning on and after July 1, 2017, you may claim a credit up to $5 million, not to exceed your tax liability. Unused credits may be carried forward for 10 years.
To qualify, the cost of the rehabilitation must equal at least 50% (25% if the building is owner occupied) of the assessed value of the building for local real estate tax purposes prior to the rehabilitation. The rehabilitation work must be certified by the Virginia Department of Historic Resources and be consistent with The Secretary of the Interior’s Standards for Rehabilitation.
Credit for Taxes Paid to Another State
To help prevent payment of taxes to multiple states on the same income, Virginia law provides a credit for taxes paid to another state. If any part of your Virginia taxable income is also taxed by another state, this credit may be available to you.
The guidelines for claiming the credit differ based on your residency. If you’re a Virginia resident, all of your income is subject to Virginia individual income tax, no matter where it was earned or what its source. If you receive income from another state and were required to pay income taxes as a nonresident in that state, you may be eligible for a credit for the income taxes you paid to that state provided the income is also taxed by Virginia.
You can only claim the credit for income tax that you paid to another state on qualifying income which is earned income, business income, or gain from the sale of any capital asset not used in a trade or business.
There are many special circumstances revolved around this particular credit so make sure to contact SIMA for advice on taking advantage of this tax credit.
Research and Development Tax Credit
Allows an income tax credit for individuals and businesses for qualified research and development expenses for taxable years beginning on or after Jan. 1, 2011, but before Jan. 1, 2022.
Effective for taxable years beginning on or after Jan. 1, 2016, the tax credit amounts are:
- 15 % of the first $300,000 in Virginia qualified research and development expenses, or
- 20% of the first $300,000 of Virginia qualified research and development expenses if the research was conducted in conjunction with a Virginia public or private college or university, to the extent the expenses exceed a base amount.
There is a $7 million cap on the total amount of credits allowed in any fiscal year. Credit applications are due July 1.
Telework Expenses Tax Credit
This credit is available to employers for eligible expenses incurred for allowing employees to telework under a signed telework agreement for taxable years beginning on or after Jan. 1, 2012, but before Jan. 1, 2022. An employer may be eligible for a credit of up to $1,200 per teleworking employee and/or a maximum of $20,000 for conducting a telework assessment. The amount of credit will not exceed $50,000 per employer for each calendar year. The telework assessment can only be allowed once. The aggregate amount of tax credits that will be issued is capped at $1 million annually.
To qualify for a credit for eligible telework expenses incurred pursuant to a telework agreement, the employer must enter into a signed telework agreement with the teleworking employee.
The amount of credit claimed cannot exceed the tax liability of the taxpayer. There is no carryforward of any unused credit. This credit is only available for expenses incurred in relation to new teleworking employees. An employee is an eligible teleworking employee if the individual works at least one day per week from their home. The business must apply for reservation of tax credits between Sept. 1 and Oct. 31 of the year preceding the taxable year for which the tax credit is to be earned using Form TEL-1. The business must also file Form TEL-2 by April 1 of the year following the calendar year that the eligible expenses were incurred.
Preparing and filing your year-end taxes can be a complex and time-consuming process, so if you have any questions about these income tax credits or other tax issues, please contact your SIMA representative.