 Hello, and welcome to this session in which we will discuss two general business tax credit. The first one is the tax credit for rehabilitation expenditure, and the second one will be for the work opportunity tax credit. The reason I chose to bunch those two together, because we have many general business tax credit, because when I was in practice, I happened to have a client that had both credits at the same time. So that's why I would like to bunch those two together. Well, guess what? Individuals or businesses, for that matter, can claim, if you're self-employed, can claim tax credit for costs associated with renovating what? Industrial and commercial building, as well as certified historic structure. So simply put, we were dealing with a certified historic structure in a city in Pennsylvania. And as a result, this individual invested money to make, to run their business from those buildings. The purpose of this credit, simply put, the government gives you a credit for this. And why? Because they want you to stay in downtown. They want to prevent you from relocating from older, and also if it's the area is considered economically disadvantaged, at the same time, preserving historical structure because you are kind of keeping the downtown nice. That's the whole reason for this. How much is the credit? The credit is 20% of your expenditure, and you have to spread this credit over a period of five years. Don't worry, it will work with some numbers. And it begins when their renovated building is put into service. So once it's put into service, it means you spend the money, you're using it now, you have five years to recapture the credit. Now when claiming the credit, the value of the restored structure is decreased by the entire allowable credit. What does that mean? They gave you a credit. Well, if they gave you the credit, you have to reduce the, you have to reduce by the amount of the credit, your basis. And we're going to see how it works. Remember, you're going to add some money, then you're going to, adding some money, it's going to increase your basis of that building, but you're going to get a credit. The credit would reduce the basis. Before we proceed any further, I have a public announcement about my company, foreheadlectures.com. foreheadaccountinglectures is a supplemental educational tool that's going to 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. The best way is to look actually at an example. Maria spent $150,000 to restore a certified historic structure. This structure had an adjusted basis of $60,000, and Maria spent $150,000. Now if this is a building, this is a regular building, what's going to happen, we would say the basis is $150,000 plus $60,000, we would say the basis of this building is $210,000. Maria is eligible for 20% of the $150,000. So she's eligible for $30,000 credit for this restoration cost. Well, the credit will be claimed again over a five-year period. So if we take $30,000 divided by $5,000, she's going to get $6,000 annually. So after applying the credit, Maria increases the basis of the building by the net amount of $120,000. So what happened is this. She spent $150,000, that's going to increase her basis by $150,000, then she received the credit of $30,000 by the government, from the government. Overall, the net increase in the basis is $120,000. Now, so in other words, the restoration expense added to the basis, but the credit reduced the basis. Quick notes about additional requirements. For one thing, you have to finish the work within 24 months. So when you start the work, it can go forever. Okay. So if it's a certified historic structure, you have to finish the significant amount of work in 24 hours. And how much money do you have to spend? Well, you have to spend the greater of two amount, either the adjusted basis of the property prior to the rehab expense. So whatever the adjusted basis, you have to spend more money than the adjusted basis or simply put more than $5,000, which is that's easy to surpass spending more than $5,000. Now, bear in mind, the qualified expenditure does not include, execute expenses incur in the process of acquiring a building that does, that doesn't count expenses for facilities connected to the building such as parking lot and expenses for expanding an existing structure. Those don't qualify. Let's take a look at the second tax credit, business tax credit, which is work opportunity credit. Well, what is that for? The employment opportunity tax credit incentivize the government want to incentivize companies, employer to do what? To hire people. Yes, they always want you to hire people, right? But they want you to hire people from various targeted and economically challenged groups. What, who are these groups? These groups would include long-term unemployed individuals, someone who've been out of work for 27 weeks, qualified ex-falons, high risk youth, food stamp recipients, veterans, summer youth employees and long-term family assistant recipient. For example, the individual that used to be my client when I was in practice, he used to hire specifically qualified ex-falon. Why? He was a good friend with the warden. And this is how he get to know some of the ex-falons, but that's a different story. But that's, that's the reason. What is the amount of the credit? The tax credit is typically 40% of the first $6,000 of wages paid for each eligible employee during 12 months of employment. Now this 12 month could spend over two years. It's total of 12 months. If an employer claims a credit, it means, if they give you a credit, it means, well, you reduce your expenses, their deduction for the wages decreased by this amount. So let's assume you paid $100,000 in wages and you had $6,000 or $8,000 in credits. Well, guess what? Now your net wages is $92,000. That's all how much you can deduct because the government already gave you a credit to qualify for the 40%. The employee must receive certification from a designated local agency as a member of a targeted group and provide at least 400 hours of service. What happened if you don't meet the first condition? But if you happen to meet the first one, but not the second one, means you did not put the hour, the credit is reduced to 25% as long as you complete at least 120 hours of service. Again, the best way to illustrate this is to take a look at an example. On April 15th, X3, John a taxpayer for the physical year hires Samantha, a certified member of a targeted group. During the first five months, Samantha earns $4,000 for 400 hours. So she met the 400 hour week. Well, John is eligible 40%. 1,600 credit. Samantha continued to work for John in 20X4 and earned an additional $9,000 by March 31st. And here we assume she met the hours. Well, as the credit applies to the first $6,000, well, she already earned the four of the 6,000. John already used up four, what's left is two. So in year 20X4, we have 2,000. And 2,000 will earn a 40% credit $800. Now bear in mind, going forward, John will no longer be allowed or the credit is no longer available because that's it for this employee. That's all you got. Now you want to get another employee, part of the targeted group. Then you can claim this credit again because it's per employee. What should you do now? Go to Farhat Lectures, whether you are a CPA candidate, enrolled agent or an accounting student to look at additional MCQs through false additional resources that's going to help you understand the concept better so you are better prepared, whether it's in your classroom or professional certification. Good luck, study hard and stay safe.