Navigating the complex world of taxes can often be overwhelming for small business owners. At Harding Bell International, we specialize in helping businesses uncover and capitalize on available tax credits and incentives that can significantly alleviate financial burdens. This guide highlights critical tax credits and incentives and offers insights into often-overlooked benefits that can ensure your small business thrives.
Understanding Tax Credits vs. Tax Deductions
Before discussing specific tax credits and incentives, it’s crucial to distinguish between tax credits and tax deductions. This understanding will help you understand their impact on your business’s financial health.
Tax credits directly reduce your tax bill, dollar for dollar, while deductions reduce the amount of your income subject to taxes. Both are beneficial, but credits can have a more substantial impact since they directly cut your payable tax.
Key Tax Credits for Small Businesses
Small businesses often overlook several valuable tax credits that significantly reduce tax liabilities. Understanding these credits and their qualifications is critical for optimizing your tax strategy.
Research and Development (R&D) Tax Credit
Even small businesses engaged in innovation can qualify for the R&D tax credit, which encourages companies to invest in technology and product development. Established in 1981, the R&D tax credit is a federal incentive that provides companies with cash savings for developing or improving products and processes, promoting innovation in the U.S. Many states also offer similar credits, and they’re widely available across diverse industries.
Small Business Health Care Tax Credit
If your business covers at least half of your employees’ health premiums, you might qualify for the Small Business Health Care Tax Credit. This can cover up to 50 percent of your premium expenses, providing a significant saving for eligible businesses. The credit operates on a sliding scale, favoring smaller employers, and can be carried to other tax years if not immediately needed, providing both a credit and a deduction for excess health insurance premium payments. It is refundable for tax-exempt employers and can be applied retroactively by filing amended returns, with specific deadlines and limitations on claims.
Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit (WOTC) is a federal incentive for employers to hire individuals from specific targeted groups facing employment barriers, such as veterans and long-term unemployed individuals, promoting workplace diversity and job access. The credit was extended until December 31, 2025, with transition relief provided for certain hiring deadlines and certification requirements for eligible employees residing in designated empowerment zones.
State and Local Incentives
Beyond federal tax credits, various state and local incentives can financially benefit small businesses. These incentives often support activities that promote economic development.
Different states offer credits for job creation, energy efficiency improvements, and more. It’s worth exploring what your state provides and how you can qualify for these incentives, often available through state economic development entities.
Energy Efficiency and Sustainability Incentives
Sustainability is good for the environment and good for your wallet. Various incentives support businesses that make strides towards greener operations.
Investing in energy-efficient equipment or renewable energy sources like solar panels can qualify your business for federal tax credits and possible state incentives. These credits not only lower your tax liability but also reduce operating costs in the long term.
Often Overlooked Tax Incentives
Many businesses overlook certain incentives simply due to a lack of awareness. Here are some that might surprise you with their potential benefits.
Disabled Access Credit
This credit is available to help offset the cost of making your business accessible to persons with disabilities. Small businesses can receive a non-refundable credit of up to $5,000 for expenses related to compliance with the Americans with Disabilities Act (ADA).
Retirement Plan Startup Costs Credit
This credit, designed to make saving for retirement more appealing to employees, is available to small businesses starting new retirement plans, such as a SEP, SIMPLE IRA or qualified plan. It can cover up to $5,000 in the first three years of the new plan.
Understanding and applying these tax credits and incentives can result in substantial savings and operational enhancements for your small business. At Harding Bell International, we’re dedicated to helping our clients discover and utilize all available opportunities. Our expertise ensures that you won’t leave any money on the table. Contact us today to explore how we can help your small business thrive through strategic tax planning and support.
