Insight on Tax Credits That Small Businesses Can Benefit From

Claim those tax credits

The annual tax filing process includes tax credits and deductions that make a huge difference in the taxes small businesses pay to the government. Accurate Tax & Bookkeeping gives insight on tax credits and some of the many tax credits that small businesses can benefit from during their tax preparation.

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What are small business tax credits?

Businesses, as well as individuals, receive tax credits from the government as an incentive to contribute to activities such as strengthening the economy, fighting climate change, being an employer, and improving other people’s lives.

An awareness of these tax credits can help reduce a business’ tax liabilities. Small businesses, especially, benefit substantially as their credit cuts their tax dollar for dollar. This credit enables small businesses to recover some operational costs and accumulate some capital to expand further.

These are tax details that small businesses must pay attention to. 

10 tax credits worth exploring

Accurate Tax & Bookkeeping lists below some tax credits that are relevant to small businesses. It is important to note that all these small business tax credits have limits and qualifications that a business must meet to be eligible to receive. 

  1. GENERAL BUSINESS TAX CREDIT

This tax credit includes many separate tax credits that can be combined on Form 3800. This tax credit is nonrefundable but can reduce tax liability to zero. Excess credits can be carried back one year if they are unable to be utilized in the current year. Similarly, this tax credit excess can be carried forward up to 20 years in the case of new businesses with no past liabilities. This is called a tax credit carryback and carry forward. 

  1. CREDIT FOR EMPLOYER HEALTH INSURANCE PREMIUMS

Small businesses can receive a tax credit of up to 50% of the premiums they pay for the employee’s health insurance coverage. This of course comes under a qualifying arrangement, or, if the business is an eligible tax-exempt employer, up to 35% of the premiums paid. Businesses can only claim credit for two consecutive years.

To accurately calculate this tax credit business owners can refer to SHOP tax credit calculator and thereafter file form 8941.

  1. CREDIT FOR PAID FAMILY AND MEDICAL LEAVE

This tax credit encourages small business owners to provide certain employees up to 12 weeks of unpaid, job-protected leave, plus access to group health benefits, every year. 

Reasons for leave could be childbirth or a health emergency in the family. Eligible employers may claim a percentage of wages they pay to qualifying employees while they’re on family and medical leave. A written policy that meets the requirements is a must to be eligible for this credit. 

Business owners can refer to the IRS instructions on form 8994 for this tax credit. 

  1. ALTERNATIVE FUEL CREDITS

This tax credit is offered to motivate businesses to invest in fuels that help lower the dependence of the country on imported oil. This credit is applicable for businesses that are involved in the production of alternative fuels, not the consumption thereof.

A claim for a refund for alcohol, biodiesel, low-sulfur diesel, or renewable diesel, or alternative fuel used to produce a mixture can be made by businesses. The relevant forms are 8849, 4136, 6478, 8864, or 8896. 

  1. ALTERNATIVE MOTOR VEHICLE CREDIT

The purchase of an alternative fuel source vehicle such as Hydrogen fuel-cell technology can grant a tax credit of up to $8000. Hybrids and electric vehicles are not eligible for this tax credit due to the use of conventional fuel sources in their functioning. This tax credit can be claimed with Form 8910.

  1. DISABLED ACCESS CREDIT

Making an office accessible to people with disabilities enables a tax credit claim of up to half of the costs, up to $5000. The costs may include installing ramps, improving storage and display units, upgrading restrooms, and providing text in braille. Check out this credit for eligibility details and claim this credit on Form 8826.

  1. CREDIT FOR EMPLOYER-PROVIDED CHILDCARE FACILITIES AND SERVICES

Businesses that directly pay the childcare expenses for their employees or help their employees secure childcare are eligible for this tax credit. The credit is for 25% of expenses, plus 10% of childcare resources and referral expenditures. This credit is capped at $150,000 a year.

Use Form 8882 to claim this tax credit. 

  1. SMALL EMPLOYER PENSION PLAN STARTUP COSTS CREDIT

This tax credit helps small businesses offset the costs of starting a pension. The credit is limited to $500—or 50% of startup costs. Organizations can claim it for the first three years of the plan.

Business owners considering this tax credit must investigate their eligibility for this credit and then claim the credit by filling out form 8881.

  1. WORK OPPORTUNITY CREDIT

Many job seekers struggle to find employment during their careers due to several reasons. This tax credit is granted to businesses that hire such employees. Some of the categories of eligible workers include ex-felons; unemployed veterans, including disabled veterans; long-term family assistance recipients; and summer youth employees living in empowerment zones.

The credits are dependent on wages paid to the employees and are capped at up to a $9,000 savings over two years.

Eligible businesses can optimize this tax credit through Form 5884.

  1. EMPLOYEE RETENTION CREDIT

A business can claim an Employee Retention Credit when it retains an employee despite a business closure or decline in business receipts. Additionally, the CARES (Coronavirus Aid, Relief, and Economic Security) Act includes a tax credit in response to COVID-19 that encourages businesses to keep employees on their payroll. This credit is worth up to $5,000 for 2020 and $7,000 for 2021.

This credit allows eligible employers to reduce upcoming federal tax deposits by the amount of the tax credit. So businesses can also file Form 7200 now to receive the tax credit early.

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About ATBS

Accurate Tax & Bookkeeping Services specializes in handling financial needs for businesses of all sizes.

Greg J. Menia founded the tax preparation service company in 2010, having worked in business tax services since 1995. The team performs tax services for small businesses and large businesses alike, serving all areas around Tampa, FL. 

Call (813) 655-9702 today if you find yourself searching for “accountants near me” in Brandon, Florida. Alternatively, contact Greg and the team at Accurate Tax & Bookkeeping Services by emailing [email protected] or visiting the offices at 710 Oakfield Dr. Suite 159, Brandon, FL 33511.