When you run a business, you can use various tax credits to reduce your taxes. Some of these tax credits include investment, work opportunity, low-income housing, and empowerment zones employment credits. Some other common tax credits include the credit for small employer pension plan start-up costs, employer-provided childcare, and alternative motor vehicles. The IRS maintains a complete list of available credits. To determine whether your business can qualify for any of these credits, visit the IRS website.
Using general business credits in the correct way can result in significant tax benefits. For example, a restaurant industry corporation may have a significant tax loss from bonus depreciation, and it may also have a large amount of the Sec. 45B(a) employer Social Security credit. Because the restaurant industry corporation is not generating taxable income, it can carry over its business credits. It is important to note that the deduction for Sec. 196 is only available for certain types of businesses, and a business can convert an excess of credits into taxable income.
The General Business credit is a grouping of over 25 tax credits. It is reported on Form 3800 and includes the following tax credits. In addition, small businesses must fill out an IRS form for each credit, tallying them on the same form. There are certain restrictions to using general business credits. One of these restrictions is that these credits cannot be used to zero out the total amount of tax liability in any one year.
A new tax credit that helps small businesses retain employees is the Employee Retention Credit. This credit is based on the number of employees and their wages. It is worth up to $5,000 per employee per year for 2020, but will increase to $700 per employee per quarter in 2021. To claim this credit, eligible employers must report total qualified wages and related health insurance costs. This credit can reduce employment tax deposits and advance payments.
A third type of tax credit is the Disabled Accessibility Tax Credit. This credit encourages businesses to make their facilities accessible for people with disabilities. Typical accessibility measures may include installing ramps, improving restrooms, and installing braille text. The credit is up to 50% of the cost of disabled access and can cover up to $10,000 of expenditure. The credit can be used for business expenses that help low-income communities.
This tax credit can be used to offset any increase in sales tax for eligible businesses. Businesses that are in high-unemployment counties can claim the credit up to 25% of their sales tax liability. In addition, the credit can carry over for nine years. The credit expires after the end of the agreement, but unused credits can be carried forward for up to five years. The credit cannot exceed 50% of a business’s direct-pay sales tax liability.
In addition to reducing the cost of running a business, many small businesses qualify for these tax breaks. Using these credits can drastically affect the bottom line of a small business. Many business tax credits are dollar-for-dollar reductions on a business’s tax liability. However, knowing about them is much more important than knowing how to calculate them. If you’re unsure about how much credit you qualify for, consult a tax professional.
