Small businesses are awarded tax credits by the government to businesses to engage in certain types of activities that are helpful to the economy or society as a whole. A tax credit can reduce the amount of tax you pay to the government.
Business tax credits are designed to encourage corporate behavior. Tax credits are applied in a business when they file their annual tax return. Keeping track of small businesses is difficult which is why governments regularly issue new tax credits and expire old credits. To save money on your business taxes, you need to know about the tax credits which are available for you.
Tax credits for small business owners:
Work Opportunity Tax Credit (WOTC)
If any of the employees have faced barriers to employment in past then they can apply to WOTC. The exact amount of credit will depend upon the workers’ salary, working time, and to which targeted group the worker belongs.
Earned Income Tax Credit (EITC)
The earned income tax credit is for the people who are employed but still earning low to moderate income, so the EITC provides a tax break to the people. The credit amount will depend upon several factors such as your marital status, number of children and will identify you based on your earning as low to moderate-income.
Child and dependent care credit
This credit will file on your taxes. This credit is worth 20-35% of childcare expenses.
Credit for the employer
If you want to qualify for a childcare tax credit, you can file through a contract or a referral program with an outside childcare facility. This credit is worth 25% to childcare expenditures and 10% for childcare resources.
Credit for small employer health insurance premiums
To qualify for this tax credit:
- You need fewer than 25 full-time employees in your business.
2. Purchase an insurance plan through a small business health insurance marketplace.
3. Pay at least half of the amount for all of your employee’s health insurance premiums. This credit is worth 50% of the amount paid towards premiums.
The Premium Tax Credit
If you want to qualify for this tax credit, you should have purchased your health insurance through the health insurance marketplace. The credit amount varies greatly depending upon the income and location of the employer.
Retirement plan start-up costs tax credit
This credit can be claimed for the first 3 years of beginning a retirement plan for the company. To qualify for this tax credit, you should be an owner of a small business company and starting a retirement plan for your employees. This credit is worth 50% of your start-up costs.
Research and development tax credit
If you have expenses for qualified research and development costs in the U.S., then you are eligible to qualify for research and development tax credit. You have no more than five years of gross receipts.
Plug-in electrical drive vehicle credit
If you are purchasing an electrical vehicle for your business then you can qualify for plug-in electric vehicle credit. This is also known as motor vehicle credit. The worth of this credit depends upon which vehicle you have purchased.
How to claim small-business tax credits
To claim for small business tax credits, one should submit an IRS form along with a tax return. This form lists every tax credit for your small business company that you are eligible for.
To get tax credits for small businesses you need to track down all your income and expenses by using accounting software. Be aware of the tax cuts and jobs acts and try to take advantage of every deduction possible. You can deduct every expense which is related to running your business. Also, looking for contributing to a retirement plan will help and protect you from taxable profits.