Negosentro.com | Reduce Your Tax Liability with These Small Business Tax Credits | Is your business tax bill too high? Do you want to reduce your tax liability? If so, the first step is to learn about what tax credits are available.
While this may seem complicated, it doesn’t have to be. From installing the best solar panels to earning income tax credits, keep reading to learn more about some of the most common tax credits used by small businesses below.
Tax Credits Explained
Before diving into the specific tax credits you can claim on your business taxes, it is a good idea to understand what these are. A tax credit is a specific dollar amount you can subtract from what you owe. Put simply, if you have a tax credit worth $500, you pay $500 less in total taxes.
Tax credits, exemptions, and deductions are not the same thing. Deductions and exemptions are used to reduce the amount of taxable income you have for a given year. With an exemption, your taxable income is reduced like a deduction, but there are fewer restrictions in place for claiming it.
Now, it’s time to dive into specific tax credits you may be able to claim.
EITC – Earned Income Tax Credit
The Earned Income Tax Credit offers a tax break for employed individuals but who still earn low or moderate-income. To determine if you are eligible for this tax credit, you have to figure out if you are below the set threshold. The qualifying number is also dependent on your tax credit and how many children are in your home.
As mentioned above, the EITC you receive varies based on specific qualifications and factors. Usually, this ranges from about $500 for no children as much as $6,000 for parents who have three or more children.
Work Opportunity Tax Credit
If you have employees who are part of a defined, targeted group that have issues being hired and finding gainful employment in the past, you may qualify for the WOTC. Some of the targeted groups who qualify include ex-felons, people with disabilities, and veterans.
The specific amount you will receive for this credit depends on the salary earned by your employee, the amount of time they have been working, and which targeted group they are in. The maximum allowed credit for most employers is $2,400 per employee.
Credit for Employer-Provided Childcare Services and Facilities
Do you have a childcare facility on-site for employees to use? Or do you offer a referral program and provide help for employees who need help with childcare? If this is the case, you may be eligible to receive this tax credit. The amount received depends on your business and what you pay. There is an annual limit of $150K per business.
Dependent and Child Care Credit
This is a credit that is filed on a person’s individual taxes, but one that cannot be overlooked. If you pay for dependent care or childcare while working or looking for employment, you will qualify for the Child and Dependent Care Credit. However, there is an extensive list of things to take note of to help you fully understand if you qualify for this specific tax credit.
Credit for Health Insurance Premiums
To be eligible to receive this credit, you have to meet set criteria. This includes a business owner with less than 25 employees who work full-time, pay less than $51,600 in wages annually, cover half the cost of all employee’s health insurance premiums, or have bought insurance plans through the Marketplace.
The credit is worth up to 50% of the total amount that you paid toward the premiums. This amount drops to 35% if you have a tax-exempt business. It is important to note that you will only be able to qualify for this credit for a period of two years in a row.
Premium Tax Credit
When searching for tax credits, the Premium Tax Credit is one that is commonly overlooked. You can qualify for this credit if you bought a personal health insurance through the Healthcare Marketplace. The amount received for this credit is dependent on several factors, including your income and the location of your business.
Tax Credit for Costs Related to Retirement Plan Startup
If you own a small business and begin a retirement plan for your employees, the IRS may reimburse some of the costs that are deemed “necessary and ordinary.” If you have under 100 employees, you may qualify for this tax credit. You can also claim the credit for the initial three years when you start the business’s retirement plan.
The credit will be up to 50% of total startup costs with a max of $500 each year.
When you speak with your CPA, you should verify that you are qualified for the tax credit. If you do not qualify for the past year, talk to your CPA about the options to begin a retirement plan the following year. It is possible to claim this credit the tax year before the year that the plan is considered effective.
Credits for Plug-In Electric Drive Vehicles
Have you purchased any type of electric vehicle, including light trucks or passenger vehicles, for business use, then you may qualify for the vehicle purchased? This is also called an alternative motor vehicle credit.
The amount of the credit is dependent on the vehicle that was purchased. It can range between $2,500 and $7,500.
Tax Credits for Research and Development
If you have any expenses related to qualified research and development costs in the U.S., then you may be eligible for this credit. Commonly called the R&D tax credit, you must have under $5 million in total gross receipts for the entire credit year. You cannot have over five years of gross receipts, too. It is possible to qualify for as much as $1.25 million total or $250K per year for a period of five years.
Working with an Accountant to Find Small Business Tax Credits
If you are currently working with a small business accountant, you may believe they can save you money and that they will find every penny you are eligible to claim. While this is true, not all accountants will be able to find every deduction or tax credit that you may be entitled to receive. Even though you may have an accountant who can point out some of the most common deductions and tax credits that they know your business is qualified for, it is still good to do your own research to make sure you are getting all the credits you are eligible for.
You can find a comprehensive list of all business tax credits that are available via the IRS website. There is a good chance that you will qualify for at least some of these, so it is a good idea to do research ahead of tax time to know what you are and are not qualified for.
Hire a Qualified Business Accountant for Help
If you want to ensure that your business is getting all the tax breaks, you are due, having a quality and reputable small business accountant is a must. This professional can help ensure you get the services that you need and that your business gets all the tax credits due. Being informed and knowing about some of the tax credits available for small businesses will help you figure out what you may be eligible to claim this year.