Small business owners are constantly seeking ways to minimize their tax liabilities and increase their bottom line. One strategy that can help achieve this goal is taking advantage of small business tax credits. Tax credits are a dollar-for-dollar reduction from the business' taxes owed to the IRS; these credits can provide significant savings for small businesses! In this article, we will discuss the top small business tax credits available in 2023 and how they can benefit your business. Read on to learn more!
What are Small Business Tax Credits?
Tax credits are incentives provided by the government to encourage specific behaviors or activities from business owners. Unlike tax deductions, which reduce the amount of taxable income, tax credits directly reduce the amount of taxes owed. Tax credits can be either non-refundable, meaning they can only reduce the taxes owed to zero, or refundable, meaning the business can receive a tax refund for any unused credit.
Tax Credits vs. Tax Deductions
Tax credits and small business tax deductions are often confused, but they have a significant difference. Tax deductions reduce the taxable income of a business, which in turn reduces the amount of taxes owed. Tax credits, on the other hand, directly reduce the amount of taxes owed. In turn, tax credits provide a more significant benefit than tax deductions because they directly reduce the tax bill’s bottom line.
This tax year, with the help of a professional, you can take advantage of the many tax credits available to you as a small business owner! Reach out to Horizon today for more information and check out some of the top available tax credits below!
Are There Tax Credits Specifically for Small Businesses?
Yes, there are tax credits designed explicitly for small businesses. The federal government and various states offer a range of tax credits to help small businesses with their tax liabilities. These credits incentivize small businesses to invest in their companies, provide health insurance coverage to their employees, hire, and retain employees, and make investments in low-income communities. Small business owners need to research and understand the tax credits available to them.
Small Business Tax Credits You Should Know About
Small business owners should be aware of the various tax credits available to them as they offer significant savings on their tax liabilities. Each credit has specific requirements and can provide a different amount of protection depending on the investment made or services provided. Small business owners need to work with a trusted partner to identify and claim the right tax credits for their business. Keep reading to learn about some of the top small business tax credits available this season.
General Business Credit (Form 3800)
The General Business Credit is a collection of various tax credits available to reduce the amount of taxes owed by a business. Some of the credits included in the General Business Credit are the Work Opportunity Tax Credit, the Disabled Access Credit, and the Research and Development Tax Credit.
Credit for Health Insurance Premiums (Form 8941)
The Credit for Health Insurance Premiums, also known as the Small Business Health Care Tax Credit, is a tax credit available to small businesses that provide health insurance coverage to their employees. This credit can be worth up to 50% of the premiums paid by the business for employee health insurance coverage. To be eligible for the credit, the business must have fewer than 25 full-time equivalent employees and must bear an average wage of less than $54,000 per year.
Work Opportunity Tax Credit (WOTC, Form 5884)
The Work Opportunity Tax Credit (WOTC) is a federal tax credit designed to incentivize small businesses to hire individuals from targeted groups who face significant barriers to employment. This credit can provide a tax credit of up to $2,400 per eligible employee for small businesses. To qualify for the WOTC credit, the employee must be a member of a targeted group, such as a veteran, ex-felon, or individual receiving food stamps.
Employee Retention Credit (Form 5884)
The Employee Retention Credit (ERC) is a federal tax credit created in response to the COVID-19 pandemic. The ERC provides a credit for a portion of an eligible employer’s qualified salaries paid to employees, including insurance premiums allocable to such wages, during a period of full or partial business suspension or a decline in gross receipts. The credit amount is equal to 50% of qualified wages paid, up to a maximum of $10,000 per employee per year. For more in-depth information on the Employee Retention Credit, check out our full ERC guide here!
Disabled Access Credit (Form 8826)
The Disabled Access Credit, also known as the Architectural Barrier Removal Tax Deduction, is a federal tax credit available to small businesses that incur expenses to remove architectural and transportation barriers that limit the accessibility of their facilities to individuals with disabilities. This credit can provide a tax credit of up to 50% of eligible expenses, up to a maximum of $10,250 per year for small businesses. To qualify for the credit, the company must have gross receipts of business income totaling $1,000,000 or less in the preceding taxable year.
New Markets Credits (Form 8874)
The New Markets Tax Credit (NMTC) is a federal tax credit designed to encourage investment in low-income communities by providing a tax credit to investors who invest in qualified Community Development Entities (CDEs). The CDEs use the invested funds to finance businesses and real estate projects located in low-income communities. The goal of the credit is to create jobs, revitalize communities, and promote economic growth. The credit is equal to 39% of the investment and is claimed over a seven-year period.
Paid Family and Medical Leave Tax Credits (Form 8994)
The Paid Family and Medical Leave Tax Credit is a federal tax credit available to eligible employers who provide paid family and medical leave to their full-time employees. The credit is designed to incentivize employers to offer paid leave to their employees and is equal to a portion of the wages paid to an employee while on leave. The credit is based on a formula that considers the amount of paid leave provided, the length of leave, and the amount of wages paid.
Horizon is a Trusted Partner for Businesses
As a small business owner, it can be overwhelming to navigate the complex world of tax credits each tax season. That's where Horizon comes in! Our team of professionals are well-versed in taxes and tax deductions and can help you identify and claim the credits that are right for your business. Reach out today and let us relieve that extra tax burden!
Offering Services for Payroll, HR, Tax Compliance, and More
In addition to tax credit services, Horizon offers various services to help businesses with their payroll, HR, and tax compliance needs. Our team of professionals is dedicated to helping small business owners save time and money while ensuring compliance with all applicable regulations. Contact us today for a free consultation!
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Our team of business compliance and payroll management experts stay up to date on the latest developments in the tax code and can provide valuable guidance to help small businesses maximize their tax savings. Check out our Tax and HR Alerts page here!
Contact Us Today for More Information
If you want to learn more about how Horizon can help your business with its tax credit needs, contact us today. Our team is ready to answer any questions and help you take advantage of the tax savings available to your business!