Knowing if you qualify for a tax credit and how to claim it is essential for every business owner who wants to reduce their tax liability. Below are some of the most prevalent tax credits for smaller companies.
Small Business Tax Credits
Small businesses can potentially qualify for several tax credits. Listed below are some of the more frequent options.
Paying Family and Medical Leave for Staff
For tax years after 2017, you can utilize Form 8994 to determine your company’s tax credit for offering staff-paid family and medical leave. In the United States, workers are entitled to at least two weeks of paid leave yearly for personal or medical reasons. Eligible workers can receive a credit of 12.5% to 25% of their salaries during their time off. You must claim the credit three years from your tax return’s original due date.
Research and Development Tax Credit
The purpose of this credit is to encourage creative forms of scientific inquiry and technological advancement (R&D). Tax credits can be used for “qualified” research and “basic” research expenditures. The following activities could fall within this category:
- Improving current products
- Development of new products
- Developing new programs and refining existing prototypes
To calculate and claim an R&D tax credit, a company can file Form 6765.
Disabled Access Credit
Small firms that invest in making their premises more welcoming to people with disabilities are eligible for this tax credit. Information about tax-deductible expenses can be found on Form 8826. Businesses that meet the requirements can claim the credit each year that expenses are made to improve accessibility.
Eligible expenditures include:
- Improving access for people with visual or auditory impairments
- Making a facility more accessible for those with physical limitations
Small Employer Health Insurance Premiums
The Affordable Care Act (ACA), also known as Obamacare, provides a tax credit to eligible businesses for the cost of employee health insurance premiums for tax years beginning after 2009. The credit amount can be determined using Form 8941 by the employer. The credit is only available for a maximum of two consecutive tax years, beginning with tax years after 2013.
Claiming Small Business Tax Credits
To claim a general business credit, you must use the IRS’s designated credit form for the specific business credit you wish to claim for the tax year in question. Form 3800 is also required and should be completed. You can calculate your current year’s general business credit by adding any accumulated Business Credits from previous years and any current Business Credits.
Talk To Your Tax Preparer/Accountant
Your accountant or tax preparer can tell you more about the tax credits your small business could be eligible for and the steps you need to take to claim them.