Oct 27, 2021.
As an entrepreneur, it’s important to understand the local, state and federal tax requirements for your business to better manage your bookkeeping and avoid costly penalties. Even if you’re working with a tax specialist, it’s wise to stay up to date on the tax codes that are applicable to your business. There are even state and federal tax credits and incentives that may apply to your business, saving you money in the long run.
To help you during tax season and throughout the year, below 11 members of Forbes Finance Council explain which tax credits and exemptions every business owner should be aware of. If you’re not already taking advantage of these credits and exemptions, you may wish to consult a financial professional to see if you qualify.
Though the paid Family and Medical Leave Credit was originally put in effect for just two years under the Tax Cuts and Jobs Act of 2017, Congress has since extended the credit twice, and it’s now applicable through 2025 under the Consolidated Appropriations Act. This is a general business credit that can be claimed by employers, subject to certain conditions, based on the wages of the qualifying employees. - Anil Grandhi , AG FinTax
The SECURE Act offers various tax credits to business owners who are implementing a new retirement plan. The credits help offset the cost of plan setup and administration. For specific information about these credits, refer to the provisions within the act or call a third-party administrator who can design the right retirement plan for your unique needs. - Ronald Stair, Creative Plan Designs, Ltd.
Through the Work Opportunity Tax Credit, businesses can receive a credit of up to $6,000 for each qualified new hire. WOTC incentivizes businesses to hire employees from underserved populations, such as veterans, ex-felons and recipients of food stamps, to name a few. The credit is 25% of qualified first-year wages and is subject to limitations and minimum hour requirements. - David Kelley, Mailprotector
Many tax credits fly under business owners’ radars, often costing them a fortune in unnecessary spending. A significant area that should be explored by many businesses is that of energy-efficiency tax credits. There is a robust system of tax incentives for businesses engaged in more energy-efficient or “green” processes. Every business should consult an expert to determine its eligibility. - Julio Gonzalez, Engineered Tax Services Inc.
The Employee Retention Tax Credit (up to $7,000 per employee per quarter for 2021) and the Disaster Benefit Tax Credit per IRSC 139 are two pandemic-related credits many businesses would currently qualify for. Whether a business has seen a drop in revenue or an increase, it’s still left with meeting the increased costs of masks, sanitizers and cleaning products to ensure the safety of its team and clients. - Minal Babaria, KB Tax Deviser CPAs
A very beneficial tax credit that every small-business owner should know about is the Credit for Small Employer Health Insurance Premiums. Although there are some very specific qualifications, this credit is extremely easy to qualify for; the one drawback is that you can only claim the credit for two consecutive years. There are many other credits businesses should look into as well, including the Employee Retention Credit and the R&D Credit. - Patrick Rood, Rood Financial Services
The R&D Tax Credit is a federal tax incentive to stimulate innovation, technical design and manufacturing. Businesses can potentially save thousands of dollars for activities they are already conducting if they understand the valuable tax incentives available to them. A fair amount of documentation is required to qualify, so ask a tax specialist about considerations and requirements. - Jody Grunden, Summit CPA Group
Employee training grants are often overlooked, and they work very similarly to a tax credit. Some states fund training programs through certain payroll taxes paid by businesses. There are required reporting rules, but your company can potentially be reimbursed for state-approved training expenses through a grant. The grant-writing process can be a challenge, so be prepared. - Dave Sackett, Visibility Corporation
The New Markets Credit, which you can file for on Form 8874, can help subsidize real estate investments in low-income communities. If you’re thinking of expanding to affordable areas, the New Markets Credit can help pay for some of the expenses incurred in moving your business. - Tyler Gallagher, Regal Assets
It’s very important to have a good business accountant to keep you up to date on tax advantages, as they are ever-changing. One significant tax credit is for the depreciation of equipment purchased for a business. Most business owners don’t take advantage of this enough. - Joe Camberato, National Business Capital
The tax credit every business should know about is the tax credit that most significantly affects its business sector. To know what this is, ask a tax specialist! If you are doing the books yourself, you will still need to speak with tax specialists to find the information you need quickly. For a few hundred dollars you can get an hour of a specialist’s time to ask as many questions as you can—so do it. - Joseph Orseno, Tiltify