Top 9 Tax Credits to Cut My Business Tax Bill
Some business owners overlook that they may be entitled to business tax credits. They recognize that individuals have credits, but sometimes forget to check if they can take advantage of credits that affect their company.
As a business owner, you should be on the lookout for any method to save your company money at tax time. Below are just a few tax credits that you may want to explore to see if your business can qualify.
1. General business tax credits
The general business tax credit is really anything but “general.” It is made up of a variety of very different potential credit areas such as investments, renewable electricity, employer-provided childcare facilities, employer differential wage payments, biodiesel and renewable diesel fuels, and a lot more. Most of the credits listed in this article are included in this “general” form, but not all.
2. Payments under state or local tax credit programs
In general, if your company makes payments to charities or government entities and you receive a tax credit for those payments, you can also deduct those payments as business expenses as well. That means that your company can get a dollar-for-dollar income deduction for donations to charity and similar payments, as long as your state also provides a similar credit.
3. Paid family and medical leave
Under the new Tax Cuts and Jobs Act enacted in 2018, business owners can claim a credit for paid family and medical leave for their employees. This credit is based on a percentage of the amount of wages paid to qualifying employees who are on leave for up to 12 weeks under the family and medical leave act. Both you and your employee must meet specific qualifications to obtain this credit.
4. Employer-provided health insurance premiums
You can get a tax credit for providing your employees with health insurance. The credit can be up to 50% of the premiums that your business pays for coverage. It only applies to small businesses that have less than 25 employees with average annual wages for the tax year of less than a certain amount (generally under $54,000, but it can change from year to year).
5. Alternative motor vehicle credit
If you purchase a vehicle for your business that uses an alternative fuel source, you may be able to get a tax credit for the purchase. However, the IRS’s definition of “alternative fuel” is not as expansive as you might think. Electric or hybrid vehicles, for example, will not qualify for this credit. Cars that use hydrogen fuel-cell technology will generally trigger the credit.
If you are considering purchasing a vehicle that has a less conventional fuel source, you may also want to check into the Alternative Fuel Vehicle Refueling Property Credit or the Qualified Electric Vehicle Credit.
6. Disabled access credit
To encourage businesses to create facilities that are fully accessible to those who have disabilities, the IRS has a tax credit for companies that build things like ramps, improved display units, and upgraded restrooms to meet the accessibility needs for those with disabilities.
This credit is only available for certain small businesses, and it can cover up to half of the expenses related to the improvement. It is capped at between $5,000 and $10,000, however.
7. Energy-Efficient Investments and Upgrades
There are a variety of tax credits and deductions for making changes to your company with the environment in mind. If you purchase and use things like solar energy, fuel cells, or wind, you may be able to get a tax credit.
In general, let your tax professional know if you have made any changes that have a positive impact on the environment. You should also talk to your advisor if you want to make an energy-efficient purchase, so you ensure you get the right products to qualify for the credit and keep the necessary documentation to take the credit.
8. Research and development tax credits
As you improve your products and services, you might also qualify for a tax credit for your research and development. This credit will vary based on your industry and the reason you are conducting the research. It is relatively broad, however, and includes things like product design and development, enhancing existing products and processes, and developing prototypes or software.
9. Work opportunity credit
The Work Opportunity Credit is available to businesses that hire employees who have barriers to getting hired in the past, such as long-term family assistance recipients, ex-felons, and unemployed veterans. There is a list of 10 types of employees that would make an employer qualify for this credit. The credit can be several thousand dollars over a period of a couple of years.