There are many tax credits small business owners can benefit from this tax season. If you set your business up correctly, are organized, and have acc
There are many tax credits small business owners can benefit from this tax season. If you set your business up correctly, are organized, and have access to professionals that can help you. In addition to reading this blog, please reach out to a tax professional to help you claim these tax credits. In addition to that, remember that there are tax credits available in your city or even in your state. The ones we provide below are not the only ones available to you. Here are 7 small business tax credits you may want to claim in 2022.
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The Work Opportunity Tax Credit
The first one we’ll start with is the Work Opportunity Tax Credit. You’ll need to fill out form 8850. The Work Opportunity Tax Credit can be yours if you simply just hire people from a targeted group. To be more specific, the US Department of Labor states that business owners who hire people who “consistently face barriers to employment,” may qualify for this tax credit.
The Internal Revenue Service (IRS) states that targeted groups include:
- Qualified IV-A Recipient
- Qualified Veteran
- Designated Community Resident (DCR)
- Vocational Rehabilitation Referral
- Summer Youth Employee
- Supplemental Nutrition Assistance Program (SNAP) Recipient
- Supplemental Security Income (SSI) Recipient
- Long-Term Family Assistance Recipient
- Qualified Long-Term Unemployment Recipient
Generally speaking, you can claim a credit of 40% of the first $6000 of the employee’s first-year wages which is $2400. Higher tax credits are available to companies that employ veterans and people on long-term family assistance.
Employee Retention Tax Credit
The Employee Retention Tax credit is a tax credit offered under the CARES Act. The aim of this tax credit is to incentivize businesses to keep their employees on the payroll. You can get up to $26,000 for a W2 employee. For more information, you can check out our blog post, “What You Need to Know About the Employee Retention Tax Credit”.
Credit for Increasing Research Activity (R&D Credits)
Did you know that your small business can get tax credits for doing research? This tax credit is an incentive for businesses to conduct qualified research. The following activities may qualify you for this tax credit:
- Developing new prototype
- Developing proprietary products and seeking products for those products
- Creating a new manufacturing or business process
- Improving product efficiency or existing business processing
- Improving quality control processes within your business
- Environmental or certification testing
If you do qualify, you can subtract 10% of your research and development costs from your tax bill. To qualify you to have to be a non publicly traded corporation, partnership, or sole proprietor that makes under $50 million dollars in gross receipt within the last 3 years.
Our main tip for this tax credit is to make sure you carefully document your research and development activities. That includes project notes, process diagrams, lab results, etc.
Disabled Access Credit
Do you know how many people who are disabled you have as clients? Do you know how many disabled people you have visiting your website? You need to know that because we all need to make sure we’re meeting the needs of members of the disabled community.
The Disabled Access Credit, is one way the government incentives businesses to make sure their buildings are accessible to the disabled.
Make sure you’re familiar with the Americans With Disabilities Act (ADA) which was enacted in 1990. Since making your business accessible may be expensive, you may be able to get a tax credit via the Disabled Access Credit.
Therefore, if your business has total revenue of one million dollars or less or 30 or fewer full-time employees, you may qualify for this credit. With this credit, you’ll be able to have up to 50% of expenditures ranging from $250 to $10,000 in one year.
To claim this small business tax credit, you’ll need to complete form 8826.
Credit for Employer-Provided Child Care Facilities & Services
This credit is for businesses that pay for their employees’ childcare or help their employees obtain childcare. This is an incentive for you when you’re hiring and providing benefits.
The following expenses are considered under the Employer-Provided Child Care Facilities and Services:
- Funds used to construct, remodel or expand a childcare facility
- Funds used to operate an existing childcare facility such as caregiver salaries
- Money used to provide childcare services and referrals through a contract with a childcare provider
Businesses that qualify for this tax credit can claim up to 25% of their expenditure on childcare. In addition to that 10% of child care referrals or resource expenditure. It’s limited to $150,000 per tax year. All facilities must be qualified child care facilities.
You can file this claim using form 8882.
Tax Credit for Small Employer Pensions Startup Costs
This tax credit helps to lower the cost of setting up a retirement plan for your team. Businesses are eligible for this tax credit if they have 100 or fewer employees during the tax year. All of these employees should receive at least $5000 in wages. The business should also not have previously had a retirement plan in place for the past 3 years for the same set of employees.
Most common retirement plans including 401K qualify under this tax credit. The credit is up to $500 for administrative costs to inform employees about their benefits and options under this plan.
To claim this tax credit, you can use form 8881.
New Markets Tax Credit
The New Markets Tax Credit is for businesses that invest in community development enterprises (CDEs) and community development financial institutions (CDFIs). The latter are the ones that help provide financial assistance to many underserved populations. The SBA partners with them to help more underserved groups get access to the Paycheck Protection Program.
You can qualify for this credit if you acquire, renovate or do construction in low-income areas. In addition to that, if you can qualify if your project involves the construction, and rehabilitation of an educational or community center. You can also qualify if you have a fix and flip business that renovate residential properties. It’s also great if the projects are helping minorities, women, or other underserved communities.
You can claim this small business tax credit with form 8874.
Please reach out to tax professionals so they can assist you in applying for the small business tax credits that you qualify for. Applying for these credits is great for wealth and legacy building so please take the time to find out about them. In addition to that, remember this list is not complete. Not only are there other federal tax credits there are others at your local level. Finally, if you need help with Employee Retention Tax Credit, we recommend the ERTC specialists to help you navigate the process.
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