A CPA firm had a client with an unexpected state tax liability. The firm was unsure of how to handle this delicate matter with the client, especially in terms of how to minimize the liability by utilizing available tax credits the client may qualify for.
The CPA firm had already advised the client on the amount of their estimated tax payment and were concerned about communicating this unexpected bad news. The tax liability could have resulted in underpayment tax penalties.Per IRS rules and regulations, if you do not pay enough tax, either through withholding or by making timely estimated tax payment, you will have underpaid your estimated tax and may be subject to a penalty. There are a number of special rules and considerations for underpayment tax penalties.
One of the CPA firm’s partners remembered an earlier presentation he attended with CTI, where CTI discussed going back to prior years and securing tax credits to offset tax liabilities. The partner contacted CTI about receiving some assistance in this particular client matter.
Immediately, CTI completed a discovery of the client’s business operations, specifically looking for the company’s qualifications in terms of tax credits and incentives programs. They identified a state program providing tax credits that would be carried over to the current year.
Not only did the tax credits from the identified state program offset the unexpected tax liability for the client, but the program also provided a further reduction of their tax liability to produce a tax refund in the current year.
The entire project to reduce the client’s tax liability and avoid underpayment penalties was completed in less than 30 days, allowing the benefit to be reflected before the filing date of the client’s state tax return.
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