Small Business Tax Credits Checklist

Top 10 Tax Credits for Small Businesses

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Tax Credits Every Small Business Owner Should Be Thinking About in 2023

1. Alcohol Fuels Credit. If you happen to be involved in the production of fuels, a credit that is calculated from the costs associated with the production of alcohol based fuels such as methanol and ethanol is available. This will only applies to production, not consumption of them.
2. Disability tax credit. Hiring an employee with barriers to your team who has a disability offers tax credit opportunities. Disability tax credits might be a great opportunity for your business and your employee. Not only are you providing a monumental benefit to your business, it’s also employing someone who may often be overlooked by others. According to the IRS, eligible expenses include:
   • Buying readers, taped texts, and other materials that help people who have visual impairments
   • Modifying or buying equipment for those with disabilities
   • Providing interpreters or other methods that make audio materials available to those who are hearing-impaired
   • Removing barriers that help your business become more accessible or usable by someone who is disabled

   Have you spent money on any of the above? If so, awesome — you may qualify for a maximum credit of $5,000 on $10,000 of expenses. You can also check out the Work Opportunity Tax Credit (WOTC), which is a federal tax credit for employers who hire employees who have faced significant barriers to employment.

   The Work Opportunity Tax Credit provides incentives to employers who hire qualified veterans and others from specifically targeted groups. This tax credit has been modified and extended several times. To get the credit, you and the applicant must complete two forms at hire and send them to your state's workforce agency for a determination of eligibility. Then, you calculate the credit and complete a form that you submit with your business tax return.

   Work Opportunity and Welfare-to-Work Expenses Credit. Credits are also available to businesses that hire employees who have traditionally faced significant barriers to employment. Barriers, such as lack of transportation, are temporary and easier to address than others like education, child-care or disabilities. The credits are calculated based on wages paid to the employees and can provide up to a $9,000 savings over two years.

3. Education credits For purposes of employee taxes, education expenses are included in the category of "working condition fringe benefits." The IRS has a specific definition of these benefits, which is that they are benefits that would be deductible to the employee on a personal tax return. To be excludable from the employee's income as a working condition fringe benefit, all of the following must apply:

   • The benefit must relate to the employer's business.
   • The employee would have been entitled to an income tax deduction if expense had been paid personally (Schedule A "unreimbursed employee expenses").
   • The business use must be substantiated with records. If you reimburse the employee in cash, you must require verification of the expense.
   • The cost of continuing education credits for employees is also included as a business expense if it meets these criteria.

   Deductible educational expenses include books, tuition, and travel costs to and from school.

   Additionally, the educational course must not:

   • Be needed to meet the minimum educational requirements of the current job.
   • Qualify the employee for a new (different) trade or business
4. Employer-sponsored childcare. Small businesses often can't afford to offer the same benefits as large corporations do. Strategically offering benefits like childcare can be a great bonus for your employees while also offsetting costs of yearly income tax bills. This employer-sponsored childcare credit is for businesses that directly pay for their employees’ childcare expenses. Business owners can claim 10 to 25 percent of this expense — up to $150,000 per year on the childcare credit. For incorporated business owners the credit can be even more attractive. As an employee of your corporation, if you invest in childcare, you could be eligible for the same benefits that you offer to the rest of your employees. It essentially can allow you to save 25 percent on your childcare costs as well.
5. Energy Efficiency. Business Tax Credits and Deductions for "Going Green". Making more energy efficient or more environmentally "friendly" changes to your business can benefit your business through tax credits. Additionally, energy efficiency changes made to your business facilities may also be eligible for tax deductions. The Business Energy Tax Investment Credit offers tax credits to businesses that purchase or implement energy-saving activities like wind, and solar energy, fuel cells, etc. The investment credit consists of the rehabilitation, energy, and reforestation credits. Investment credit property is any depreciable or amortizable property that qualifies for the rehabilitation, energy, or reforestation credit. The Rehabilitation, Energy and Reforestation Investments Credits can be claimed for investments in reforestation, and building rehabilitation and alternative energy property improvements used in business. This credit generally qualifies for 10% of expenditures and is limited to $10,000 per year
6. Health Care Tax Credit. The Patient Protection and Affordable Care Act (Obamacare) offers the health care tax credit to small businesses that pay at least half the cost of single coverage for their employees. If your business plan meets the qualifications, you can get a credit for up to 50% of health insurance premiums paid for employees. The credit if for small employers with fewer than 25 full-time equivalent employees.
7. Hybrid Vehicle Tax Credit. Tax Credits for Alternative-Hybrid Fueled Cars are available to individuals and businesses who buy brand new hybrid, electric or diesel fuel vehicles. This allows them to take advantage of the "Alternative Motor Vehicle Credit" which applies to new cars and trucks that are IRS credit certified. To qualify, the vehicle must be new, and meet certain fuel efficiency and mileage guidelines. The tax credit ranges from $1,200 to $9,600.
8. Pension Plan Small Employer Pension Startup Costs Credit. A credit for small businesses to offset the costs of starting a pension limits this credit to $500.
9. Research and Development. Small businesses can pursue research and development to claim the R&D tax credit. Keeping research local helps the economy which is why this tax credit is designed specifically for this purpose. While this type of research can potentially strengthen the core offerings of your business, it can also help move your entire industry forward. Research and Development tax credits have been available for many years, but small businesses often don't realize they can qualify for these credits. The PATH Act includes additional incentives in the form of tax credits for small businesses who use the R&D (Research and Development) tax credit. The credit is applicable to many activities including:
   • Product development,
   • Improving product quality, reliability, or function,
   • Improving business performance
   • Developing new or improved products
   • Developing prototypes or models
   • Developing or applying for patents
   • Certification testing
   • Developing new technology
   • Environmental testing
   • Developing or improving software technologies
   • Building or improving manufacturing facilities
   • Streamlining internal processes
10. Retirement contributions. Self-employed taxpayers can benefit from retirement account contributions. When you're self-employed, it can be difficult to decide what percentage you should contribute to a SEP-IRA, a Self-Employed 401(k) plan, or a Profit Sharing plan. Several questions can be used to determine proper investment in this area including: Type of Business, Net Business Profit, and Your Age. Contributions are limited to 25% of your net earnings from self-employment (not including contributions for yourself), up to $55,000 for 2023; $56,000 for 2024.

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