Tax credit providers are companies that assist other businesses with maximizing government incentives and tax credits, such as research and development (R&D), employee retention credits (ERC), and work opportunity tax credits (WOTC). These tech-enabled services evaluate businesses’ financial records, usually expenses, W-2’s, 1099’s, previous tax returns, etc., to see if they qualify for any tax credits. In turn, companies can use these tax credits to offset income and payroll taxes.
Tax credit providers have in-depth knowledge of tax laws and regulations, and spend substantial time calculating and supporting any tax credits a company might claim on tax returns. Typically, tax credit providers do not file taxes on behalf of their clients, but rather work with accounting teams to summarize their findings in a report, and make sure credit is filed correctly. These reports can also serve as documented support in case of an audit. Tax credit providers often work together with tax services providers, who specialize in the actual filing of taxes.
Tax credits should not be confused with tax deductions. Tax credits can be used towards paying taxes owed or paid, while tax deductions lower taxable income.
To qualify for inclusion in the Tax Credit Providers category, a service provider must:
- Evaluate business financials, such as expenses, W-2’s, and 1099’s, to determine if a company is eligible for any tax credits
- Work directly with the clients’ staff to better understand current and historical project data
- Calculate any tax credits based on local and federal guidelines
- Summarize and document findings in a report that supports and substantiates the tax credit in case of an audit