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6 Overlooked Tax Credits for Small Business Owners

6 Overlooked Tax Credits for Small Business Owners

Benjamin Franklin is supposed to have said, “In this world, nothing can be said to be certain, except death and taxes.” The IRS collected nearly $263.6 billion in income tax, before refunds, from businesses in FY 2020. As a business owner, did you know that you may be leaving thousands of dollars worth of unclaimed tax credits each year? Let’s have a look at six overlooked tax credits for small business owners.

Retirement Plans with the Help of Adding a Defined Benefit Plan

Business owners can set up and use an advanced retirement planning option known as a defined benefit plan to save on their taxes. If you are a business owner, by setting up a small business defined benefit plan, you’ll save thousands each year on your taxes and will also get the chance to accelerate your savings for retirement.

Research and Development Credits

Research and development (R&D) credits happen to be a type of tax credit that business owners can avail. These became available in 1981 to incentivize businesses to employ research employees and advance technologically. Companies that develop, manufacture, design, and carry out research on product improvement can claim R&D credits. Keep in mind that it is not necessary to develop a new product to claim this tax credit as a business. Your business can claim this credit if you are improving an existing product or process. Be sure to consult a professional tax planner to determine whether your business can claim this tax credit.

Work Opportunity Tax Credits

Your business can claim work opportunity tax credits if you employ and retain employees from specific target groups who usually face barriers to fair employment. The target groups include Food Stamp recipients, TANF recipients, veterans, ex-felons, Vocational Rehabilitation referrals, and a few other categories.

There are no restrictions on the number of employees you have to hire to be eligible to claim this credit. As an employer, you will be eligible for a 40% credit for the first year of employment and a 50% credit for the second year of employment. The employee should have worked a minimum of 125 hours for you to claim 25% credit and at least 400 hours for you to be eligible to claim the full credit for that year.

Disabled Access Tax Credits

Employers have been mandated by law since 1990 to provide facility access and accommodation to individuals with disabilities. The IRS offers disabled access tax credits to businesses with less than 30 employees and under $1 million in gross sales, who carry out installations and modifications to their offices, making the office more accessible to individuals with disabilities. This tax credit can be claimed each year a business incurs an eligible expenditure towards making their office or facility more disabled-friendly.

Investment Tax Credits

Businesses operating in the agricultural, commercial, utility, and industrial fields can apply for investment tax credits. They can do so if they use specific energy-saving equipment such as fuel cells, solar energy, geothermal systems, small wind turbines, or microturbines as energy services. The government offers this credit to encourage businesses to shift to green energy. As a business, if you opt for energy-saving equipment, not only will you be cutting down on environmental pollution, you’ll be saving on taxes too!

Retirement Plan Tax Credits

If you are a small business with less than 100 employees, you’ll be eligible for claiming retirement plan tax credits if you provide specific retirement plans to your employees. Examples of retirement plans that are covered in this tax credit scheme are Simple IRAs, SEP IRAs, and specific retirement plans such as 401(k), defined-benefit plans, profit-sharing plans, and money-purchase pension plans.


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by Harvey Carr // Harvey Carr is a contributor to Businessing Magazine.

Opinions expressed by contributors are their own.