Posted by John Posey
If you or someone you know operates a small business in Nebraska with 5 or fewer full-time employees, they may be eligible for up to $20,000 in state of Nebraska refundable tax credits through the Nebraska Advantage Microenterprise Tax Credit. This credit was expanded in the year 2021 from $10,000 to a $20,000 lifetime credit which applies both to the individual and the microbusiness. Check out the link for further info, but here are some quick tips that may help with the process should you consider it further. It would be wise to consult your tax advisor.
1. You must apply for the credit BEFORE NOVEMBER 1st to use credit for that corresponding tax year. For example, I must file before Nov 1, 2022 if I want the possibility of using this tax credit in the 2022 tax year. Any application filed after November 1 is treated as filed on the 1st business day of the following calendar year! Take it from me that you can’t wait until tax prep time to start exploring it and expect to apply it for the past tax year – it’s too late at that point. You and/or your tax preparer better be good at planning ahead to successfully claim this credit.
2. If you successfully reserve and use the credit yet fall short of being able to use the entire reserved credit in one tax year:
A) You can attempt to use your unclaimed/unused reserved credits in the next tax year (applicant has two consecutive tax years to claim credit) OR
B) You can re-apply in subsequent years in attempts to reserve and use up your lifetime limit. You might consider this to the extent you expect you will be eligible for more credit than you have remaining to claim (Use Form 3800N to run projections). Again, you’ll have to make an intentional effort to file application BEFORE NOVEMBER 1st if you intend to reserve and use additional credits in that corresponding year.
3. The credit is limited to 20% of the increase in business compensation and certain qualified expenses, i.e. - new investment increase over the prior year. To the extent you plan to claim credit as it relates to expenses, be prepared to provide copies of all invoices supporting the purchases with a corresponding spreadsheet. If it makes your head hurt just thinking about compiling and organizing the expense information, consider yourself warned. Note that you can apply solely on compensation increases which could be much simpler if you have a growing income year over year.
4. Depreciable asset purchases DO NOT INCLUDE motor vehicles OR Section 179 expenses as it relates to Form 3800N-Worksheet M per my discussion with the Nebraska Department of Revenue. Don’t let that fact burst your bubble when considering potential credits for new investment.
These are just a few things that I discovered in exploring this Nebraska tax credit. It’s wise to start planning early if you have the opportunity to qualify for it.
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