The WOTC is a federal tax credit of $2,400–$9,600 per qualifying new hire for employers who hire individuals from certain target groups, including veterans, long-term unemployment recipients, SNAP recipients, ex-felons, and vocational rehabilitation referrals. The credit is a dollar-for-dollar reduction in federal income taxes.

To claim WOTC, you must submit IRS Form 8850 (Pre-Screening Notice) to your state workforce agency within 28 days of the employee's start date. The state agency certifies eligibility. You then claim the credit on IRS Form 5884 with your tax return.

Qualifying target groups include: veterans (especially disabled veterans), long-term TANF recipients, SNAP (food stamp) recipients, designated community residents, vocational rehabilitation referrals, ex-felons, SSI recipients, long-term unemployment recipients (27+ weeks), and summer youth employees in empowerment zones.

The standard WOTC credit is 40% of first-year wages up to $6,000 ($2,400 maximum). For long-term TANF recipients, the credit extends to the second year (total up to $9,000). For disabled veterans, the credit can reach $9,600. The employee must work at least 400 hours to qualify for the full credit.

Yes. There is no minimum size requirement — any employer that hires qualifying individuals and files the required forms is eligible. The WOTC is one of the most underutilized credits for small businesses, particularly in industries with high turnover like restaurants, retail, and hospitality.

To substantiate your Employee Retention Credit (ERC) claim, it is crucial to maintain meticulous records. This includes payroll records demonstrating qualified wages paid, documentation of health plan expenses, and evidence supporting the decline in gross receipts or the government-mandated shutdown orders. The IRS recommends keeping these records for at least four years from the date the tax becomes due or is paid, whichever is later, as per IRS Notice 2021-20 and 2021-49. Failure to provide adequate documentation can lead to disallowance of the credit and potential penalties under IRC Section 6662.

Yes, a new business may qualify for the Employee Retention Credit (ERC) as a 'recovery startup business' for calendar quarters beginning after June 30, 2021, and before January 1, 2022. To meet this definition, the business must have begun carrying on any trade or business after February 15, 2020, and have average annual gross receipts not exceeding $1 million for the three taxable years preceding the calendar quarter in which the credit is claimed. The maximum credit for a recovery startup business is limited to $50,000 per calendar quarter, as outlined in IRC Section 3134(c)(5).

Generally, wages paid to certain owners and their family members are not considered qualified wages for the Employee Retention Credit (ERC). Specifically, wages paid to an individual who owns more than 50% of the stock of the corporation (or more than 50% of the capital or profits interest in a partnership), or to a spouse, child, grandchild, parent, grandparent, brother, or sister of such an owner, are excluded. This 'related individual' rule is based on the attribution rules of IRC Section 267(c) and is designed to prevent abuse. Employers should carefully review ownership structures to ensure compliance.

The statute of limitations for the IRS to assess additional tax related to an Employee Retention Credit (ERC) claim is generally three years from the date the original Form 941 (or amended Form 941-X) was filed. However, for ERC claims made for the third and fourth quarters of 2021, the statute of limitations is extended to five years, as specified in the Infrastructure Investment and Jobs Act. This means the IRS has additional time to review and potentially audit these particular claims, emphasizing the need for robust record-keeping.

Yes, if you initially overlooked claiming the Employee Retention Credit (ERC), you can amend your previously filed employment tax returns. To do this, you would typically file Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund, for the relevant quarters. The deadline for amending these returns generally follows the statute of limitations for assessment, which is typically three years from the date the original Form 941 was filed. For the third and fourth quarters of 2021, this period is extended to five years, as per the Infrastructure Investment and Jobs Act.

The Child Tax Credit is $2,000 per qualifying child under age 17 in 2026, permanently extended under the OBBBA. Up to $1,700 of the credit is refundable (the Additional Child Tax Credit) for taxpayers with earned income above $2,500. The credit begins to phase out at $200,000 AGI for single filers and $400,000 for married filing jointly, reducing by $50 for every $1,000 of income above the threshold.

The child must be under age 17 at the end of the tax year, a U.S. citizen or resident, claimed as your dependent, and have lived with you for more than half the year. The child must also have a valid Social Security number. There is no limit on the number of qualifying children you can claim.

Yes — up to $1,700 of the $2,000 credit is refundable as the Additional Child Tax Credit (ACTC). If your tax liability is less than the credit amount, you can receive the refundable portion as a cash refund. The refundable amount is calculated as 15% of earned income above $2,500, up to the $1,700 limit per child.

The credit phases out by $50 for every $1,000 (or fraction thereof) of AGI above $200,000 (single) or $400,000 (MFJ). At $440,000 MFJ, the credit is fully phased out for two children. Reducing AGI through retirement contributions, HSA contributions, or business deductions can preserve or increase the credit.

Yes — these are two separate credits. The Child Tax Credit ($2,000/child) is based on having a qualifying child under 17. The Child and Dependent Care Credit (up to $1,050 for one child, $2,100 for two or more) is based on childcare expenses paid so you can work. Both can be claimed in the same year for the same child.

Yes, under the Tax Cuts and Jobs Act of 2017 (TCJA), distributions from a 529 College Savings Plan can be used to pay for up to $10,000 per beneficiary per year in tuition expenses for enrollment at an elementary or secondary public, private, or religious school. This provision, codified in Internal Revenue Code (IRC) Section 529(c)(7), allows for tax-free withdrawals for these K-12 expenses. It's important to note that this $10,000 limit applies per beneficiary, not per account, and only covers tuition, not other K-12 related expenses like books or transportation. State tax treatment may vary, so consult your state's rules.

If you make a non-qualified withdrawal from your 529 College Savings Plan, the earnings portion of the distribution will be subject to federal income tax at your ordinary income tax rate. Additionally, a 10% federal penalty tax will generally apply to the earnings, as outlined in IRC Section 529(c)(6). There are certain exceptions to the 10% penalty, such as the beneficiary's death, disability, or receipt of a tax-free scholarship. However, the earnings will still be subject to income tax in these cases. It's crucial to carefully plan withdrawals to avoid these penalties and taxes.

Beginning in 2024, the SECURE 2.0 Act of 2022 introduced a new provision allowing for tax-free rollovers from a 529 College Savings Plan to a Roth IRA, provided certain conditions are met. The 529 account must have been open for at least 15 years, and the rollover is limited to the aggregate Roth IRA contribution limit for the year, subject to a lifetime maximum of $35,000 per beneficiary. This rollover is also subject to the beneficiary's earned income requirement for Roth IRA contributions. This provision, found in IRC Section 529(c)(3)(E), offers a new avenue for unused 529 funds.

No, contributions to a 529 College Savings Plan are not deductible on your federal income tax return. While the earnings grow tax-free and qualified distributions are tax-free at the federal level, there is no upfront federal tax deduction for contributions. However, many states offer a state income tax deduction or credit for contributions to their own state's 529 plan, and sometimes even for contributions to other states' plans. It's essential to check your specific state's tax laws to understand any potential state-level tax benefits for contributing to a 529 College Savings Plan.

Contributions to a 529 College Savings Plan are considered completed gifts for federal gift tax purposes. This means they are subject to the annual gift tax exclusion, which is $18,000 per donor per beneficiary in 2024 (and is indexed for inflation). You can contribute up to five years' worth of annual exclusions at once, known as 'superfunding,' without incurring gift tax, as per IRC Section 529(c)(2)(B). For 2024, this would be $90,000 per donor. If you exceed this amount, you would need to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, but the amount would typically be covered by your lifetime gift tax exemption.

No, for wages to be deductible under the 'Hire Your Children' strategy, the work performed by your children must be legitimate and ordinary and necessary for your trade or business, as per IRS Publication 334, Tax Guide for Small Business. Paying them for personal chores like cleaning their room or doing dishes does not qualify as a business expense. The work must be directly related to generating income for your business, such as administrative tasks, website maintenance, or assisting with product packaging, and their compensation must be reasonable for the services rendered.

Under the 'Hire Your Children' strategy, wages paid by a parent to a child under age 18 in a sole proprietorship or partnership where the parents are the only partners are exempt from Social Security and Medicare taxes (FICA). Additionally, wages paid to a child under age 21 are exempt from Federal Unemployment Tax Act (FUTA) taxes. These exemptions are outlined in IRS Publication 15, Circular E, Employer's Tax Guide. If your business is incorporated, these exemptions generally do not apply, and the child's wages would be subject to FICA and FUTA regardless of age.

Yes, if your child earns income from your business through the 'Hire Your Children' strategy, they can contribute to a SEP IRA or SIMPLE IRA, provided your business offers such plans and they meet the eligibility requirements. For a SEP IRA, the child must be at least 21 years old, have worked for the business in at least three of the immediately preceding five years, and earned at least $750 (indexed for inflation) in compensation for 2024. For a SIMPLE IRA, there are generally no age requirements, but they must have received at least $5,000 in compensation during any two preceding calendar years and are reasonably expected to receive at least $5,000 in the current year. These contributions are governed by IRS Publication 560, Retirement Plans for Small Business (SEP, SIMPLE IRA, and Qualified Plans).

Yes, diligent record-keeping is crucial for supporting the 'Hire Your Children' deduction. You must maintain records similar to those for any other employee, including time sheets or logs detailing the hours worked, a clear description of the services performed, and documentation of the wages paid (e.g., pay stubs, cancelled checks, or bank transfer records). It's also advisable to have a written job description and a formal employment agreement. These records are essential to demonstrate to the IRS that the employment is legitimate and the wages are reasonable for the work performed, as per IRS Publication 583, Starting a Business and Keeping Records.

The 'Hire Your Children' strategy can indirectly impact the Child Tax Credit for 2026. While the wages paid to your child are a deductible business expense for you, they become taxable income for your child. If your child's earned income exceeds the standard deduction, they will owe income tax. However, for the Child Tax Credit (up to $2,000 per qualifying child for 2026, with up to $1,600 refundable), the child must be under age 17 at the end of the tax year and meet other dependency tests. The child's earned income from your business does not disqualify them from being a qualifying child for the credit, as long as they do not provide over half of their own support. Refer to IRS Publication 972, Child Tax Credit and Credit for Other Dependents, for detailed eligibility requirements.

The Residential Clean Energy Credit (formerly the Investment Tax Credit) allows homeowners to claim 30% of the cost of a solar panel system as a federal tax credit. The 30% rate applies to systems installed through 2032, stepping down to 26% in 2033 and 22% in 2034. The credit covers the cost of panels, inverters, mounting hardware, wiring, and installation labor.

No — the Residential Clean Energy Credit is non-refundable, meaning it can reduce your tax liability to zero but cannot generate a refund. However, any unused credit carries forward to future tax years indefinitely until fully used. If your tax liability is less than the credit amount, you will use the remainder in subsequent years.

The Residential Clean Energy Credit applies to your primary or secondary residence. For rental properties, the Investment Tax Credit (ITC) applies instead, which also provides a 30% credit but is claimed as a business credit. Rental property solar installations can also be depreciated, generating additional deductions beyond the credit.

In addition to solar, the Residential Clean Energy Credit covers wind turbines, geothermal heat pumps, battery storage systems (10 kWh minimum), and fuel cells. The Energy Efficient Home Improvement Credit (25C) provides separate credits for insulation, windows, doors, heat pumps, and electric panel upgrades — up to $3,200/year.

Yes — standalone battery storage systems with a capacity of at least 10 kWh qualify for the 30% Residential Clean Energy Credit starting in 2023, even if not paired with solar panels. This is a significant expansion from prior law, which required battery storage to be charged by solar to qualify.

For new clean vehicles purchased in 2026, the electric vehicle tax credit has specific Modified Adjusted Gross Income (MAGI) limitations. Your MAGI cannot exceed $300,000 for married couples filing jointly or surviving spouses, $225,000 for heads of household, or $150,000 for all other filers. If your MAGI exceeds these thresholds in the year the vehicle is delivered or the preceding tax year, you will not be eligible for the credit. These income limits are outlined in IRC Section 30D(f)(10).

Yes, in 2026, certain used clean vehicles may qualify for the Used Clean Vehicle Credit, which is distinct from the new electric vehicle tax credit. This credit, under IRC Section 25E, offers a credit equal to 30% of the sale price, up to a maximum of $4,000. The vehicle must be purchased from a dealer, cost $25,000 or less, and be at least two model years older than the calendar year in which it is purchased. There are also income limitations for this credit, which are lower than for new vehicles.

To qualify for the full $7,500 electric vehicle tax credit in 2026, vehicles must meet stringent battery component and critical mineral sourcing requirements, as detailed in IRC Section 30D(d)(7). For the critical minerals component, a certain percentage of the value of the applicable critical minerals contained in the battery must be extracted or processed in the U.S. or a free trade agreement country, or recycled in North America. For the battery components, a certain percentage of the value of the battery components must be manufactured or assembled in North America. These percentages increase annually, making it more challenging for vehicles to qualify for the full credit.

Generally, if you lease an electric vehicle in 2026, you cannot directly claim the electric vehicle tax credit (IRC Section 30D) as the original manufacturer's suggested retail price (MSRP) and ownership requirements typically apply to purchasers. However, the leasing company, as the owner of the vehicle, may be eligible for a commercial clean vehicle credit under IRC Section 45W. They may then choose to pass on some or all of this benefit to you in the form of lower lease payments. It's important to discuss this with your leasing company.

For new electric vehicles purchased in 2026 to qualify for the electric vehicle tax credit, they must adhere to specific Manufacturer's Suggested Retail Price (MSRP) limitations. Vans, sport utility vehicles, and pickup trucks must have an MSRP of no more than $80,000. For all other vehicles, the MSRP limit is $55,000. Vehicles exceeding these price caps, as specified in IRC Section 30D(f)(1)(B), are not eligible for the credit, regardless of other qualifying factors.

The personal Clean Vehicle Credit (§30D) for new EVs was repealed under the OBBBA for vehicles purchased after December 31, 2025. However, the Commercial Clean Vehicle Credit (§45W, Form 8936) for business-use EVs remains available at up to $7,500 for vehicles under 14,000 lbs. If you are buying an EV for business use, the commercial credit still applies. Book a call to confirm eligibility for your specific vehicle and use case.

To qualify for the full $7,500 credit, the vehicle must be a new plug-in electric vehicle with a battery capacity of at least 7 kWh, have a final assembly in North America, meet critical mineral and battery component sourcing requirements, and fall within MSRP limits ($55,000 for cars, $80,000 for SUVs and trucks). The IRS maintains a current list of qualifying vehicles at fueleconomy.gov.

Yes — starting in 2024, you can transfer the Clean Vehicle Credit to the dealer at the point of sale, effectively receiving the credit as a discount on the purchase price. This is beneficial if your tax liability is less than $7,500 or if you want the benefit immediately rather than waiting until you file your return. The dealer then claims the credit from the IRS.

Businesses can claim the Commercial Clean Vehicle Credit (Form 8936) for EVs used in business, which provides up to $7,500 for vehicles under 14,000 lbs GVWR and up to $40,000 for larger commercial vehicles. Unlike the personal credit, the commercial credit has no income limits and no MSRP caps. Businesses can also combine the credit with Section 179 expensing and bonus depreciation.

The personal Clean Vehicle Credit is non-refundable — it can reduce your tax liability to zero but cannot generate a refund. However, if you transfer the credit to the dealer at purchase, you receive the full benefit regardless of your tax liability. The Commercial Clean Vehicle Credit for businesses is also non-refundable but can be carried back 1 year or forward 20 years.

The Retirement Plan Startup Credit (Form 8881) provides a tax credit for small businesses that establish a new qualified retirement plan (401(k), SEP-IRA, SIMPLE IRA, or defined benefit plan). Under SECURE 2.0, businesses with 50 or fewer employees can claim 100% of eligible startup costs up to $5,000/year for the first 3 years — a maximum of $15,000 in total credits.

Eligible startup costs include: plan setup and administration fees, employee education and enrollment costs, and costs to set up payroll integration. The credit covers 100% of these costs for businesses with 50 or fewer employees, and 50% for businesses with 51-100 employees. Businesses with more than 100 employees do not qualify.

Yes — SECURE 2.0 added a $500/year credit for plans that include automatic enrollment features. This credit is available for the first 3 years of the plan and stacks on top of the startup cost credit. A plan with automatic enrollment can generate up to $16,500 in total credits over 3 years ($15,000 startup + $1,500 auto-enrollment).

No — the startup credit is only available for new plans. If you already have a retirement plan and want to add features (like automatic enrollment), you may qualify for the auto-enrollment credit but not the startup cost credit. The plan must be established for the first time to qualify for the startup credit.

The best plan depends on your goals: a Safe Harbor 401(k) avoids discrimination testing and allows maximum contributions for owner-employees; a SIMPLE IRA is easier to administer but has lower contribution limits; a SEP-IRA is easy to set up but requires proportional contributions for all eligible employees. Uncle Kam can model the contribution and tax savings for each option based on your payroll.

The Energy Efficient Home Improvement Credit (Section 25C) provides a 30% credit for qualifying energy efficiency improvements to your primary residence. The annual credit limit is $3,200 total, with sub-limits: $2,000 for heat pumps and biomass stoves, $1,200 for insulation, windows, doors, and energy audits (with further per-item limits). The credit resets each year through 2032.

Qualifying improvements include: heat pumps (air-source and geothermal), heat pump water heaters, biomass stoves and boilers, exterior windows and skylights (must meet Energy Star Most Efficient criteria), exterior doors (must meet Energy Star requirements), insulation and air sealing materials, and home energy audits. Central air conditioners and gas furnaces may also qualify if they meet efficiency thresholds.

Yes — unlike the old Nonbusiness Energy Property Credit which had a lifetime limit, the new Section 25C credit has an annual limit that resets each year. You can claim up to $3,200 in credits per year through 2032, allowing you to spread energy upgrades across multiple years and maximize the total credits claimed.

No — the Section 25C credit applies only to your primary residence. Rental properties do not qualify for this credit. However, energy efficiency improvements to rental properties can be depreciated as capital improvements, and in some cases may qualify for bonus depreciation or Section 179 expensing if the property is used in a trade or business.

Yes — the Section 25C (Energy Efficient Home Improvement Credit) and the Section 25D (Residential Clean Energy Credit for solar) are separate credits with separate limits. You can claim both in the same year. For example, installing solar ($10,500 credit) and a heat pump ($2,000 credit) in the same year would generate $12,500 in total federal tax credits.

Yes, for tax years 2018 through 2025, the mortgage interest deduction is limited to interest paid on acquisition indebtedness of up to $750,000 ($375,000 for married individuals filing separately). This limit applies to the total amount of debt used to buy, build, or substantially improve your primary home and one other qualified residence. For debt incurred on or before December 15, 2017, the previous limit of $1 million ($500,000 for married filing separately) still applies. This limitation is outlined in IRS Publication 936, Home Mortgage Interest Deduction, and is a key consideration for homeowners with larger mortgages.