 Hello and welcome to this session in which we will keep working with the general business tax credits and in this session I will cover several remaining business tax credit those are not all of them But I believe those are most common or stuff that you might see on the CPA exam or in your accounting course Which are the low-income housing credit disabled access credit small employer pension start-up cost credit credit for employer provided child care and employer provided family and medical leave Before we proceed any further. I have a public announcement about my company farhat lectures comm Farhat accounting lectures is a supplemental educational tool That's gonna help you with your CPA exam preparation as well as your accounting courses My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles My accounting courses are aligned with your accounting courses broken down by chapter and topics My resources consist of Lectures multiple choice questions true false questions as well as exercises. Go ahead start your free trial today Starting with the low-income housing credit just as the as the name of the credit low-income housing It means what it's designed to encourage individual to provide property to low-income tenants The reason is Congress wants to deal with the homelessness issue So what do we do? We encourage people if they have housing unit and they're willing to rent it for low-income tenant We'll give them a credit the amount of the credit is designed on the qualified basis of the property Which is determined by the number of units rented to the low-income tenant So the more low-income tenant you rent to the higher is your credit and the credit is spread over 10 year period But a subject to potential recapture. So if you have a building It was initially designed to be rented for low-income then you changed your mind And you got some credit your the credit will be recaptured Let's take a look at this example. Samantha spent 2.5 million to build a low-income housing project That's completed June 1st of the current year The entire project is rented to low-income families And the credit rate for property placed and serviced during June is 9.5 So Samantha can claim because she rented 100 of the property 2.5 million times 9.5 She can claims a credit of 237 500 in the current year Now the rate might change. That's fine. Just kind of to show you how the credit works Now Samantha only Rented 80 of those units to low-income families rather than 100 will take 2.5 million times 80 percent times 9.9 0.5. So the credit will be 190 So the point is if you rent it to the more units you rent the higher is your credit Now, let's talk about the disabled access credit and the purpose of it is to encourage eligible small businesses to retrofit their existing facilities To make it accessible to disabled individuals. So you want to make it Disabled to individuals we are willing to help you as the government the credit amount Is equal to 50 percent of the eligible expenditure and you have to spend more than 250 But up to 10,250 simply put The maximum credit is 10,000 because let's assume you did spend 10,250 Or more what's gonna happen is they're gonna you're gonna take 2,250 minus the 250 What's gonna left piece 5,000 5,000 times 50 percent The maximum credit is 5,000 now to qualify a small business Must have a gross income of 1 million or less During the previous year or have no more than 30 full-time employees. So this is designed for small businesses The eligible expenditure would include what? Amount that are paid to incur certain changes to older facilities such as installing ramps Widening door doorways and adding raised Marking on elevators control button. Those are the some typical expenditure Also improvement to assist hearing or visually impaired employees or customers who interact with the business is also eligible Now the credit amount is deducted from the tax basis of the assets. So if they gave you a credit Your basis will go down. Why because you are getting some sort of a credit However expenditure incur in connection with any facilities that was placed in service after november 1990 are not eligible because at this point the assumption is they should be already Retrofit for disabled individual Let's take a look at this example blue company in eligible small business spent $8,000 on capital improvement To a building that was placed in service september 1988 The improvement made Blue's business more accessible to disabled individual and as a result it was Qualifying eligible expenditure for this credit that's able to access credit program. What is the amount of the credit? Well, we spent 8,000 the first 250 is not counted Times 50 percent The credit is 3,875 notice. We spent $8,000 Only the access of 80 250 over 250 which is 8,000 qualify for the credit the adjusted basis So what happened is this we spent 8,000 that's going to increase the basis However, since we received 38 75 of a credit What's going to happen the net increase In the basis is 41 50 not 8,000 because you did receive a credit and it's very important to understand If you receive a credit you have to reduce your basis. It reduces your basis Now let's talk about a small employer pension plan startup cost. Well What is that for to help small employers small businesses start a pension plan for their employees? So eligible small businesses can claim a non refundable credit for administrative expenses incur and establishing and starting and maintaining a qualify retirement plan Primarily for their non highly compensated employees for the highly compensated Those could be the owners. You're not you're not going to get a credit for that You're going to get credit for helping your employees now Well expenses such as payroll System changes retirement related education program and consulting fees are typically deductible as or their necessary business The credit reduces the after-tax cost of establishing a qualified retirement plan. So yes So you do have those various expenditure as part of Having employees and administration costs But starting a plan will give you will reduce your after-tax cost because it's going to give you a credit Why well they want you to do what provide retirement plan for employees Government wants to do everything to help you help your employees for retirement because otherwise They are the government problem. That's why that's the purpose of it. So small employer pension plan um credit is up to 50 percent of qualified startup cost now Of course, there are certain limit certain limitation to be eligible an employer must have fewer than 100 employees Who have earned at least 5 000 in compensation? So this is not designed for large companies and the maximum credit is typically the lesser of $5 000 Or $250 multiply by the number of nine highly compensated employees. So the maximum is the lesser of these two Okay, however, the credit cannot be less than $500 The amount of the credit is deducted from the deduction of startup cost incurred. So let's assume you incurred 6 000 in startup cost and you got a credit of 1500 you deduct this so your cost is 4500 The credit can be claimed for qualifying cost incur each of the follow each of the first three years following the tax here In which the retirement plan becomes effective. So you don't have to spend it only in one year. Let's take a look at an example Mabel company decided to establish a qualified retirement plan for its non highly compensated employees At part of the process It paid a consulting fee of 21 100 to affirm that provided educational seminar eligible employees And assisted the payroll department in making the necessary changes. So we just incur some cost as an administrative cost And maple has 65 non highly compensated employees who are eligible to participate now To help you offset the startup cost maple claim a credit of $5 000 which is the lesser of 5 000 or 250 times 65 what's 250 250 is the number given by the government times the non highly compensated employees 16 500 so you're comparing 16 500 to 5 000 so So you get your the credit is 5 000 now Maple maple deduction for these expenses is reduced by 16 500. You had 21 200 What's gonna happen is you're gonna reduce those deductions by 5000. Why because you got a credit You cannot have the credit and also use that deduction. So you pay 21 200. That's fine If you don't take the credit will give you a deduction Since you got a credit for that what's left as a deduction is 16 200 And this is basically not common sense, but something you have to know If you got a credit for a deduction you cannot get the credit and the deduction if you got the credit You have to remove the credit amount from the deduction if you want to take the deduction. That's fine Then you will take the full deduction Let's take a look at the credit for employer provided childcare from the name of it Your company is helping you with childcare services So employer can claim a credit for providing childcare facilities to their employees during their normal working hours For example, I work at a college and they do have childcare facilities on campus. It's limited to 150 000 per year And the credit amount is 25 of the qualified childcare expenses 10 of the qualified childcare and referral services Deductible qualifying expenses must be reduced by the credit amount. That's always the case In the basis of the property must be reduced by the credit amount as well So if you get a credit you have a property You have a building must be reduced because you got a credit and the credit might be subject to recapture If this childcare facilities cease to be used for qualifying purposes within 10 years of being placed in service Because what's the original purpose of this facility childcare facilities is to service your employees As an employer you're providing this to your employees Well, what happened if you change your mind and you want to open this childcare facilities? Well, you're gonna have a credit recapture It means any credit you got in the past you'll have to recapture it. Let's take a look at a quick example During the year maple constructed a childcare facilities for 400 000 to be used by its employees Who have a preschool age children in need of childcare services while their parent at work at this specific company In addition The company incurred salaries for childcare workers They need to house this place and other administrative cost of a hundred thousand dollar So as a result maple's credit for employer provider childcare services is 400 of the cost plus the administrative 500 000 multiplied by 25 percent Which is 125 000 What's gonna happen is this the basis of the facilities is reduced to 300 000 why Because we got we got a credit 25 credit. Remember the building has a 400 000 gave us 25 percent Which has gave us 100 000 It means the the basis of this building remember the basis was 400 000. That's the basis now we reduce it by 100 000 So when we sell it in the future, we're gonna have more game We're gonna have more gained And maple deduction for administrative cost remember we paid 100 000 and salaries Can we deduct 100 000 and the answer is no we can only deduct 75 why 75 because we were given a credit For 25 000 we cannot have the credit and the deduction. So just again This theme repeats itself again and again and again Let's talk about the employer provided family and medical leave from the name of it Yeah, well companies employer could get exceeds 50 percent So if you happen to be very generous and you're paying more than 50 percent of the normal wages That credit is increased by 0.25 percentage point for each point above 1 percent So if you pay them 1 51 percent of their salaries, well your credit is increased by 0.25 For instance, if the employee pays 60 percent of their usual wages and salaries Then the credit becomes 15 percent Which is because it's 12.5 the base and you're getting 10 10 times 0.25 which will give you Up to 15 percent now bear in mind the credit is subject to a cap of 25 percent of wages paid They don't you know, you can't go forever Which would be allowed if the employer paid 100 percent of the employer wages during the leave So the maximum credit is 25 percent the credit applies To a maximum of 12 weeks of leave per employee during any taxable year So you can get this credit for 12 weeks of leave no more than that So to qualify for this credit You need to implement a rating policy that guarantee all full-time employees receive a minimum of two weeks Of paid leave and medical leave per year. So you have to have a policy None full-time employees should be provided None full-time employees, which is part-time employees should be provided leave on a pro proportionate basis Wages paid as vacation leave person leave or other form of medical or sick leave are not considered as family leave You have to have to have to be a family leave in writing Okay, the credit applied to wages paid during taxable year 2018 through 2015. So if you're outside those years, you know The the credit doesn't apply or the the rules might have changed or the congress might decide to extend it Just keep that in mind what we talked about here applied to those Years, what should you do now go to far hat lectures and look at additional resources? That's gonna help you Understand the concept do better in your course enrolled agent exam CPA exam Good luck study hard. It's worth it and stay safe