Dealing with taxes is an important part of running any business. Therefore, it is essential for business owners to be aware of all available tax credit programs that can offset your corporate tax bills. Many tax credits and deductions are designed to help businesses reduce taxes by participating in certain activities.
Generally speaking, these incentives function as an effective way for the government to incentivize and reward businesses for contributing to their respective communities.
Tax credits are different from tax deductions. These two can often be confused. Tax deductions can only lower your taxable income and the tax rate that is used to calculate your tax, while tax credits reduce your taxes, giving you a larger return of your withholding. There are a few tax credit programs for business owners that cannot be missed outlined here.
Small Business Health Insurance Premiums (Form 8941)
This credit was outlined in the Affordable Care Act, most often referred to as Obamacare. It is a credit that companies can claim when they provide health insurance to employees in a small business. Businesses that are eligible meet these requirements:
- Paying at least half of the employee’s health insurance premiums
- Having fewer than 25 full-time employees
- Purchasing a qualified health plan from the SHOP marketplace
- Paying an average wage of less than $55,000 a year for each full-time employee
This credit can only be claimed for two consecutive years.
Work Opportunity Tax Credit (Form 5884)
There are certain targeted groups that can earn your company a lucrative tax credit under the Work Opportunity Tax Credit (WOTC) program. These targeted groups include:
- SNAP Recipients
- TANF Recipients
- Qualified Veterans
- Designated Community Residents
- Vocational-Rehabilitation Referrals
- Supplemental Security Income (SSI) Recipients
- Summer Youth Hires
- Qualified Long-Term Unemployed Recipients
The list includes a fairly large amount of people who have already hired someone from these groups, without knowing. The credit amount ranges from $1,500 to $9,600 and depends largely on the target group the individual is certified under as well as the hours worked within their first year of employment.
Credit for Increasing Research Activities (Form 6765)
There are several reasons why you will be eligible for tax credit programs for business owners related to research and development. The following types of activity may qualify you for this credit.
- Environmental or ratification testing
- Improving quality control processes
- Developing new protocols
- Proprietary products and seeking patents
- New manufacturing processes
- Improvements on quality control
- Improvements in product efficiency
You should consult with your tax preparer to determine eligibility under this credit.
Disabled Access Credit (Form 8826)
The ADA has enacted various laws and policies to ensure that those with a disability have reasonable accommodations. Because of this, there are tax credits to match. The disabled access credit motivates businesses to make business locations accessible to customers and employees who have a disability. There are many benefits to making your business accessible.
Employer-Provided Childcare Facilities and Services (Form 8882)
Helping your employees obtain childcare by providing in-house facilities is a great way to ensure that your employees are comfortable and able to come to work. It is also another way to claim tax credits for your business.
New Markets Credit (Form 8874)
This tax credit is for businesses that invest in Community Development Enterprises and Community Development Financial Institutions. They are primarily geared toward low-income communities.
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