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Small business owners have some commonly missed tax credits that they should be watching out for every tax season.
As a small business owner, it’s imperative to be fully aware of any tax credits available to help maximize your rightful savings. Alas, for mere lack of awareness, many miss out on valuable credits that would otherwise significantly reduce taxable income and lower tax bills overall.
Read along below while we discuss some available tax credits most commonly underutilized or outright missed by small businesses—and expound on why it’s so crucial to take advantage of these opportunities.
General Business Tax Credit
The general business tax credit is a catch-all credit that encompasses various smaller tax credits, such as the rehabilitation tax credit, energy-efficient commercial building tax credit, and more. These credits are often overlooked because they require careful record-keeping and documentation. However, they can result in substantial tax savings for small-business owners. It’s essential to review the IRS guidelines and work with a qualified accountant to determine if you qualify for any of these credits.
Research & Development (R&D) Tax Credit
The R&D tax credit is designed to incentivize businesses to invest in research and development activities. Many small businesses assume that they don’t qualify for this credit because they are not engaged in traditional research and development. However, the definition of “research and development” is broader than commonly perceived and can include activities such as improving products, processes, or software development. This credit can result in significant tax savings for small businesses, and it’s crucial to explore if your business is eligible.
Paid Family and Medical Leave Credit
This credit is available to small businesses that provide paid family and medical leave to their employees. The credit can be up to 25% of the wages paid to employees during their leave, subject to certain limitations. Small businesses often miss out on this credit due to lack of awareness or misunderstanding of the requirements. It’s important to review the IRS guidelines and consult with a tax professional to determine if your business qualifies for this credit.
Childcare Tax Credit
Small businesses that provide childcare facilities or resources for their employees can qualify for the childcare tax credit. This credit can cover a portion of the costs incurred to provide childcare services, making it more affordable for employees. Many small businesses are not aware of this credit or do not realize the potential tax savings it can provide. It’s essential to understand the requirements and consult with a tax professional to determine if your business qualifies for this credit.
Small Business Health Insurance Premiums Credit
Small businesses that offer health insurance to their employees may be eligible for a tax credit to offset the cost of premiums. The Small Business Health Care Tax Credit is available to businesses with fewer than 25 employees, and the credit amount is based on the size of the business and the average wages paid to employees. This credit is often overlooked due to a lack of awareness or misunderstanding of the requirements. It’s important to review the IRS guidelines and work with a qualified accountant to determine if your business qualifies for this credit.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to businesses that hire employees from specific/predesignated”—for lack of a more artful term— “classifications,” such as veterans, individuals with disabilities, ex-felons, etc. Many small businesses aren’t aware of this credit or otherwise don’t take advantage of it, perhaps intimidated or overwhelmed by the thought of additional paperwork and documentation. However, this claim can result in significant tax savings for small businesses that hire employees from eligible groups. As with any of the above, it’s of the utmost import to understand the necessarily-met requirements to optimize all , a task best approached with the help of a qualified, certified accountant.
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