At Cook Martin, we work with a lot of small businesses. Our work with these businesses includes stuff such as business consulting, outsourced CFO services, and many other things. But perhaps what we are most known for is our pro active approach to tax planning.
In regards to taxes, of course people and businesses want to pay as little as possible.
Many come to us with the question:
What tax credits are available for my small business?
This is a great question!
This post will explain 7 credits you should know about for your small business.
1. Qualified Research Expenses Credit
If your business is involved in certain kinds of domestic research or development, you may be able to qualify for the Research Expenses Credit.
Some qualified activities include:
- Streamlining internal processes
- Developing or improving technologies
- Building or improving manufacturing facilities
- Applying for patents
- Creating prototypes or models
- Improving products or processes
The credit calculation is fairly complex and the definition of qualified research is broad. Get in touch with your tax consultant to see if your business qualifies.
2. Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is available to businesses that hire certain target groups, including veterans.
The credit is usually equal to 40 percent of each full time worker’s first year wages, up to $6,000. The maximum credit is $2,400, but can be as high as $9,600 for disabled veterans.
3. Small Business Health Credit
This tax credit is designed to help small businesses and other tax-exempt organizations that tend to employ lower-income workers. In order to qualify, your business must:
- Have less than 25 full-time employees
- Pay at least half the employee premiums for single health insurance coverage
If you meet these qualifications, you can claim the credit, but only for two consecutive years. It can result in substantial savings, with a maximum credit of 50 percent.
4. Disabled Access Credit
The disabled access credit is designed to encourage businesses to be more accessible to disabled individuals, as per the Americans with Disabilities Act (ADA). Your business can qualify for the credit if:
- Your business had gross receipts of $1 million or less
- You didn’t employ more than 30 full-time workers in the previous tax year
Usually, the credit is available for 50 percent of the first $10,000 of expenses, making the maximum credit $5,000.
5. Alternative Motor Vehicle Credit
This tax credit is designed to encourage businesses to purchase an alternative fuel source vehicle.
Your business can get a credit of up to $8,000, but it doesn’t apply to hybrids or electric cars that use conventional fuel sources. Right now, only one vehicle that is recognized by the IRS as eligible is the Honda FCX Clarity, which uses hydrogen fuel-cells.
This is an important tax credit to think about when making a new vehicle purchase for your business. You can save on fuel and get a considerable yearly tax credit.
6. Employer-provided Child-care Credit
Many workers take advantage of the dependent care credit when they have to pay for child care services in order to have a job.
However there’s an also alternative tax credit for businesses that provide child care benefits for their employees either onsite or nearby.
The credit allows for 25 percent of child care service expenses plus 10 percent of resource and referral expenses. The maximum credit is $150,000 per year.
7. Work Opportunity and Welfare-to-Work Expenses Credit
There are a range of credits available for businesses that hire employees who have faced significant “barriers to employment” that make it difficult to either find or keep a job.
Examples include transportation issues, disabilities, educational disadvantages, etc. How much credit you can receive depends on the wages paid to these employees. The credit can provide your business with as much as $9,000 in savings for 2 years.
Believe it or not, there are many tax credits out there that are designed to help out small businesses such as yours, like the:
- Qualified Research Expenses Credit
- Work Opportunity Tax Credit
- Small Business Health Credit
- Disabled Access Credit
- Alternative Motor Vehicle Credit
- Employer-provided Child-care Credit
- Work Opportunity and Welfare-to-Work Expenses Credit
Keep up to date about the latest tax legislation and take advantage of as many credits as you can. If you don’t qualify for a tax credit this year, try to position your business to qualify for more in the future.