10 Tax Credits All Small Businesses Should Know About

Are you looking to save money on your taxes? Feel like you are overpaying come tax time? If you feel that way, you aren’t alone—30 percent of small businesses think they are overpaying taxes.

What is a tax credit? It’s a way for you to save money on your taxes by subtracting an amount from what you owe.

To help lower your taxes, check out these tax credits to help you keep more money for your business.

1. Small Business Health Care Tax Credit

If you pay a portion of your employees’ health insurance premiums, you may be eligible for a credit. You must pay at least half the cost of coverage for your employees. If you qualify, you can receive up to 50 percent credit on your premium cost.

Other qualifications include:

  • Average wages less than $55,000
  • Less than 25 full-time employees
  • Have a qualified health plan

You can get a similar tax deduction if you are self-employed for yourself, dependents, and your spouse. This health insurance deduction is for all costs of health insurance including long-term care, medical insurance, and dental insurance.

You can only claim this credit for two years. If you have already claimed it for two consecutive years, you are no longer eligible.

2. Work Opportunity Tax Credit

This tax credit is an incentive for employers to hire:

  • Veterans
  • Individuals with disabilities
  • Ex-felons
  • Family assistance recipients
  • Vocational rehabilitation referrals
  • Individuals getting Supplemental Security Income (SSI)
  • Summer youth or residents in federal empowerment zones
  • Individuals that were unemployed long-term

The amount of this credit depends on your employee’s category and how many hours this employee works. Credits are typically higher for companies with long-term family assistance recipients and veterans.

3. Tax Credit for Research and Development

There are also credits for companies implementing research and development (R&D) activities. These credits go beyond medical, science, and technology businesses.

These activities may qualify you for an R&D tax credit:

  • Improving quality control
  • Developing a patent
  • Building new software
  • Creating new prototypes or models
  • Enhancing business processes or product efficiency
  • Developing new products
  • Creating new manufacturing processes
  • Testing for environmental or certification

If you qualify for this credit, you can usually deduct up to 10 percent of these R&D costs.

4. Earned Income Tax Credit

This credit provides a break to people that are employed but still earn low or moderate-income. This would be for you as a small business owner.

You need to determine your income to see if it qualifies under this category. The government considers your income low to moderate depending on your marital status and how many children or dependents are in your household.

This credit can range anywhere from $500 if you don’t have children or more than $6,000 if you have three or more children.

5. Employer-Provided Child Care Credit

If you pay for a portion of your employees’ child care costs, you may be eligible for this credit. The following expenses are included in this credit:

  • Expenses to operate a child care facility
  • Expenses through a qualified child care facility to care for employees’ children
  • Expenses for resources and referrals for a qualified child care provider
  • Expenses to remodel, expand, or build a child care facility

If you qualify, you can claim up to 25 percent of your child care expenditures and an additional 10 percent of the referral and child care resources. To qualify, the facilities must be licenses and meet state requirements.

6. Credit for Family and Medical Leave

If you paid leave for your employees through the Family and Medical Leave Act, you may qualify. This act gives employees up to 12 weeks of unpaid, protected leave, and access to group health benefits.

Reasons for this leave include family emergencies or the birth of a child. The credit is equal to a percentage of your qualifying employee’s wages while they are on leave.

Your business needs a written policy to meet requirements, which include two weeks of paid leave every year to qualifying, full-time employees. The paid leave cannot be less than 50 percent of normal wages.

Employees must also work for your business for at least one year and earned less than $72,000 in the previous tax year. The credit ranges from 12.5 to 20 percent depending on employee’s wages.

7. Pension Start-Up Credit

This credit helps offset the costs of starting a pension for your employees. The limit on this credit is $500 or 50 percent of your costs to start the program. You can claim this credit for three years when you start this program.

You must have less than 100 employees and not have an existing retirement plan or 401(k) in the previous three years.

8. Disabled Access Credit

If you made changes to your facilities to be accessible to individuals with disabilities, you could be eligible for this credit. This includes renovating bathrooms to be handicap-friendly, installing ramps, providing braille in your text, and improving display units.

To be eligible, your business needs a total revenue of $1 million or less and fewer than 30 employees. You can use up to 50 percent of these expenditures. There is a maximum credit.

9. Rehabilitation and Energy Credit

You might be eligible for this credit if you renovated or rehabilitated an old building or used alternative energy sources like wind or solar power.

This credit usually pays for about 10 percent of your expenditures. There is a maximum credit of $10,000 per year.

10. New Markets Credit

If you invested in a company that creates jobs in low-income communities, you may be eligible. Most eligible projects include renovating, building, or acquiring real estate in these areas.

The project must be in an area with a 20 percent poverty rate or median family income that doesn’t surpass 80 percent of the area’s average median income.

Remember These Tax Credits

Tax credits can help your business save money. Be sure to discuss any of these credits with your accountant or tax provider.

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