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Every business owner needs to learn as much as they can about tax credits available to a business. There are many different credits that you might not be aware of, so we decided to put together this short guide sharing some of the most common tax credits for a business to claim on their taxes.
Keep reading to become more familiar so that now that tax season is here you are better informed. Also, you can figure out if you have been missing out in recent tax years.
This tax credit was created thanks to the Affordable Care Act (ACA). The small business healthcare tax credit makes it affordable and easier for a small business owner to offer health insurance to their employees. Small businesses have to meet these requirements in order to be eligible to use this tax credit on their taxes:
This tax credit is worth up to 50% of the amount your business contributes towards the health insurance premiums for each individual employee. Keep in mind that you can only use this tax for two consecutive years.
There are also phase-out rules associated with the health care tax credit. This means that the credit amount decreases as the number of employees and their average annual wages increase.
This tax credit is also known as the ERC. It is a refundable credit that is funded by the government to help businesses that were affected by the COVID-19 pandemic. The credit itself is based on a percentage of the wages that you pay your employees.
One of the biggest benefits of this credit is that you don’t have to spend the money a certain way and you don’t have to pay the money back. You can take a look at this website for even more information about the ERC. Keep in mind that this credit came from the CARES Act of 2020.
The Research and Development (R&D) Tax Credit is a tax credit that allows businesses to engage in research and development activities. In 1981 this tax credit was established with the end goal to improve products, processes, and services.
Businesses of all sizes (even startups) can take advantage of this credit. The expenses that can be claimed include wages, contracted research, and supplies.
One major benefit is that it reduces the tax liability for a company by a percentage of their qualified research expenses (QREs). It can also be used to help offset up to 20% of the federal tax liability, if the business qualifies.
Another benefit is that it simplifies tax planning because a business can reduce their effective tax rate. As a small business owner, you can plan out the budgets better and also allocate certain resources towards research.
Also, this tax credit is available to businesses in a fairly wide range of industries. Industries like biotech, software development, manufacturing, and engineering can take advantage of research and development credits.
The research and development tax credit also encourages innovation because small businesses are encouraged to invest money in technology and also innovation. In turn, this helps create a competitive advantage for their business because they can improve existing products to help increase both revenue and processes.
One last benefit worth mentioning is that if a company has zero tax liability in the year, accumulates research and development expenses, and the business can carry the credit forward for up to 20 years. This means that even if the business is not profitable that year, it can still benefit from this tax credit.
We highly recommend for any business to work with a tax professional to make sure that you are taking advantage of all the tax credits you are eligible for. A tax pro will help you navigate the complex tax code.
As you can see, tax credits for businesses are a valuable tool that can help your business’s tax liability. If you found this blog post helpful, make sure you keep browsing our business section for our latest.