The Work Opportunity Tax Credit (WOTC) is a federal tax credit that businesses can use to offset the cost of hiring people from specific target groups who have consistently encountered significant barriers to employment. WOTC initiatives help to improve workplace diversity and make it easier for all citizens to acquire decent jobs.

The Consolidated Appropriation Act, 2021 authorized the extension of the Work Opportunity Tax Credit until December 31, 2025. This means taxpayers can claim the credit on or before Dec 31, 2025, for such eligible hiring. Needless to say, WOTC is only for one time per employee and cannot be claimed for re-hired.

Eligible Businesses for WOTC

There is no specific limit on business size to be eligible under this scheme. Any size of business is eligible for the work opportunity tax credit if it hires candidates from qualified groups. This credit is available to both taxpayers and certain tax-exempt employers operating in the United States and some U.S. territories. Basically, the employers must fall under the below criteria as

• Taxpayers that can claim the credit against income taxes
• Tax-exempt employers can claim the credit only against payroll taxes and only for wages paid to members of the qualified veteran targeted group.

Target Groups Qualified under WOTC

Any employers can claim WOTC for the below-targeted groups under section 51 of the Code. The employee must be a certified member of any one of the following groups to proceed with the claim.

• Veterans
• Recipients state assistance under part A of title IV of the Social Security Act (SSA)
• Individuals who have previously served time in prison or who have been convicted of a felony
• People who live in empowerment zones or rural renewal counties
• Individuals who have been referred to an employer after completing a rehabilitation plan or program
• People whose families receive supplemental nutrition assistance under the Food and Nutrition Act of 2000
• Recipients of supplemental security income benefits under title XVI of the SSA
• Individuals experiencing long-term unemployment

How much can be claimed?

The amount of tax credit under the WOTC program varies based on the employee’s target group, total hours worked, and total qualified wages earned. For instance,

• If the qualified employee has worked for at least 400 hours and is still in the first year of employment, WOTC is equal to 40% of up to $6,000 wages paid or incurred with a maximum credit of $2,400 for an employee
• If the eligible employee has 120 to 399 hours of service, then a 25% rate applies to wages
• Up to $24,000 in wages may be considered in determining the WOTC for certain qualified veteran targeted group

 Procedure to Claim WOTC

Taxpayers and Tax-exempt organizations can apply through different IRS Forms to claim WOTC. But all need to complete Form 8850 which is a Pre-Screening Notice and Certification Request to certify that the employee is qualified under the target group. These documents must be submitted to the State Workforce Agency not the IRS within 28 days of the new employee’s start date. Once the State Workforce Agency certifies the employee, Taxpayers can file Form 5884 (Work Opportunity Credit) and tax-exempt employers file Form 5884-C (Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans) to claim the WOTC.

IRS Audit Group is a Tax Audit Representation Firm in Los Angeles, California. Our Tax professionals act on the behalf of the taxpayer during an IRS audit. The IRS audit process can terrify some taxpayers but the Taxpayer Bill of Rights states that individuals can seek help from an IRS tax representative like us to represent them during the IRS audit. Don’t Panic, if you have received a mail for IRS Audit but act fast by contacting us immediately for the next step.

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Qualified Opportunity Fund (QOF) is an investment vehicle formed as a company or partnership with the goal of investing in property within Qualified Opportunity Zones. This program was formed per the 2017 Tax Cuts and Jobs Act to provide a tax incentive for private, long-term investment in economically distressed communities. There are thousands of low-income communities in all 50 states, the District of Columbia and five U.S. territories that are designated as Qualified Opportunity Zones. Taxpayers can invest in these zones through Qualified Opportunity Funds. This type of opportunity funds assists taxpayers in giving tax advantages and rewards to investors.

Certain types of businesses cannot be included in opportunity funds, even if it falls within opportunity zones. Following are types of business which are not included in opportunity funds.

• Golf courses
• Country clubs
• Massage parlors
• Hot tub facilities
• Suntan facilities
• Racetracks or other facilities used for gambling
• Liquor stores

Eligibility Criteria

To certify and maintain a Qualified Opportunity Fund, an entity must:

• Be a partnership, corporation, or LLC that is treated as a partnership or corporation, and it must have filed a federal income tax return;
• Be organized for the purpose of investing in Qualified Opportunity Zone property under the laws in one of the 50 states, the District of Columbia, a U.S. possession, or a federally recognized Indian tribal government: and
• Hold 90% of its assets in Qualified Opportunity Zone property.

IRS Form Required to Certify as a Qualified Opportunity Fund

The entity must file Form 8996, QOF, with the qualifying partnership or corporation’s federal tax return each year to attest and retain its status as a Qualified Opportunity Fund. The entity must file Form 8996 by the due date for 2022 tax return (including extensions).

Form 8996 is used to:

• Certify the corporation or partnership is organized to invest in Qualified Opportunity Zone property.
• Report that it meets the 90% investment standard of section 1400Z-2.
• Figure the penalty if it fails to meet the 90% investment standard.

Benefits to the Taxpayers

The QOF basically provides tax deferral to the capital gains if the taxpayer elects to do so. The basis in the QOF investment becomes zero when one elect to defer the gain. The longer the investment in the QOF, the higher the basis grows. The tax benefit received is determined by the length of time one retains the Qualified Opportunity Fund investment. For instance

• After five years, a taxpayer who defers gains through a Qualified Opportunity Fund investment obtains a 10% step-up in tax basis
• It will be followed by another 5% step-up after seven years. Note that the taxpayer must have invested before December 31, 2019, to receive the entire 15% step-up in tax base. The taxpayer will have held the investment in the fund for seven years when the tax is triggered at the end of 2026, thereby qualifying for the 15% increase in tax basis.
• If the taxpayer holds the investment in the QOF for at least 10 years, then such taxpayer may be able to permanently exclude gain resulting from a qualifying investment when it is sold or exchanged.

A team of tax attorneys from IRS Audit Groups helps taxpayers in filling their IRS return for 2022. We are certified tax lawyers who represent taxpayers during any IRS audit. We can resolve common tax problems to complex audit sessions to help comply our clients. Get free consultation by calling or filling the enquiry from our website below

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RMD (Required Minimum Distributions) is an important part in everyone’s retirement income planning process. As we are approaching the end of the year it is important to remind about the deadlines associated with RMD withdrawals. In order to avoid tax penalties from IRS, withdraw your RMD’s on time from certain retirement accounts. Yes, tax audit can be done by the IRS for the non-withdrawal IRA accounts because withdrawals will be subject to federal income tax. The deadline to withdraw the RMD amount is December-31 2019.

To enjoy the golden years after retirement, the IRS is providing options to invest in a variety of tax-advantaged retirement accounts. The types Of Individual Retirement Accounts (IRA) can be as follows:

Traditional IRA

This type of individual retirement account will allow your earnings grow tax deferred. There are some advantages and limits in traditional IRA plan. Individuals will be able to deduct the entire amount of the IRA contribution if not covered by retirement plan by the employers. There is no income limit for this plan. You can invest in traditional IRA plan, no matter how much you earn. But one cannot make contribution after the age of 70.5 years. You should begin to take the RMD amount from your account by April 1 of the calendar year following the year you reach the age of 70.5. Failures to withdraw, the IRS will audit your account and can impose a whopping penalty of 50% from the minimum amount to be withdrawn.

Simplified Employee Pension (SEP) IRA

This is a plan for those who are self-employed, own a business, employs others or earn freelance income. Generally, employers will be contributors of SEP IRA but employees also be able to make traditional contribution to SEP IRA. Employees can participate only if they are 21 or older and should earn at least $600 in the tax year, and worked with the employer in at least 3 of the past 5 years.

Simple IRA

Simple IRA is a retirement plan offered by small businesses up to 100 employees. Distribution can be taken within 2 years of opening the plan. In simple IRA, the employer can match the contribution of employees up to 3% of salary. When the employee not chooses to participate in the plan, then the employer can make the contribution of a flat 2%. Compared to other retirement plans, simple IRA plan offers lower startup and annual costs.

You can estimate the current and future year’s RMD amount with a simple calculation. It is determined by the prior year’s December 31^st IRA account balance. Then check the distribution period based on your age. The account balance should be divided by the distribution factor you found based on your age. Online RMD calculators also available to calculate the amount you can withdraw from your RMD account.

IRS Audit Group’s resolves your tax issues faced during the IRS Audit. Through the RMD’s IRS will collect the tax from your income and investment gains. If you have any questions regarding RMD’s, the different IRA plans, to know how the RMD amount is calculated and to avoid the tax penalties for your RMD accounts by the IRS we can help you to resolve with our efficient tax experts. We also offer Tax Audit Representation Services for all your tax dispute cases, Contact us for free consultation

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