The United States government rewards businesses with tax credits for taking certain actions that help to strengthen the economy, improve people’s lives or even just benefit society at large. Unlike tax deductions, business tax credits cut down the actual amount of your tax bill. Before beginning tax planning and preparation, check to see if you might be eligible to cash in on these options for savings.
Save Big this Year with Business Tax Credits
1) General Business Tax Credit
The general business tax credit is ostensibly several different tax incentives rolled into one. It was created to motivate business owners to affect positive change through actions like purchasing electric vehicles and retaining employees.
Although some of these tax credits are outlined separately, you will ultimately need to add them all together when filling out IRS Form 3800 to receive the general business credit.
2) Work Opportunity Credit
Small businesses can earn the work opportunity credit by hiring employees from groups who have traditionally faced significant barriers to gaining employment, including:
- Unemployed and disabled veterans
- Long-term government assistance recipients
If you have hired employees from disadvantaged backgrounds, your company might be eligible to receive the work opportunity credit.
3) Credit for Small Employer Health Insurance Premiums
Employer contributions to health insurance coverage is another type of expense that can be used to lower your tax bill. The IRS will apply a business tax credit of up to 50 percent of the premiums paid for health insurance by for-profit companies. Tax-exempt organizations may be eligible for up to 35 percent.
4) Credit for Paid Family and Medical Leave
In 2017, Congress authorized a tax credit for businesses who provided paid leave to employees under the Family Leave and Medical Leave Act. The credit amounts to about 12.5 percent to 25 percent of the wages paid to qualifying employees on family or medical leave for up to 12 weeks.
5) Disabled Access Credit
Businesses who have improved disability access to their facilities by installing ramps, accessible bathrooms and other features may be eligible for a tax credit. If your company has less than $1 million in revenue or fewer than 30 full-time employees, you can recoup up to 50 percent of these types of expenditures up to $10,000 with the disabled access credit.
6) Empowerment Zone and Renewal Community Employment Credit
To stimulate the economy, the IRS gives business tax credits to employers who hire individuals who live and work in low-income areas, called Empowerment Zones. Your business could receive up to $3,000 in credits for hiring a full or part-time worker from one of these low-income areas.
The United States tax code provides many opportunities for businesses to reduce their tax burden in 2020. If you would like personalized assistance in identifying tax credits, consult a local accountant.