A small and medium sized business should review all sorts of tax credits available. Tax Credits are designed to offset the actual tax liability associated with a business. Tax Credits are not the same as a tax deduction. Tax Deductions decreases a business’s actual income. Tax credits are commonly used to incentivize businesses in ways such as hiring more staff to stimulate the economy for making meaningful contributions to business needs.
General Business Tax Credit (Form 3800)
“General Business” tax credit, can be considered as a “kitchen sink” tax credit because it is made up of smaller individual credits. Together, they are designed to motivate savvy business owners to participate in certain activities. For example, if you purchased a qualified electric vehicle for your business, branched out into a new market, or retained a certain number of employees, you may qualify for a General Business Tax Credit.
Paid Family and Medical Leave Tax Credit (Form 8994)
This Employer Credit for Paid Family and Medical Leave is a tax credit frequently overlooked by small businesses. The Employer Credit Paid Family and Medical Leave is relatively new, enacted in 2017. The purpose for which this tax credit, was created was to incentivize employers to provide paid leave to all employees who are protected by the Family and Medical Leave Act. All eligible employees are entitled to a maximum of up to 12 weeks of unpaid leave for a serious medical condition and retaining access to their group health benefits at the same time.
The credit itself is equal to a percentage of the wages that an employer pays to those qualified employees while they’re on leave for things like unexpected medical emergencies or even giving birth.
The Alternative Motor Vehicle Tax Credit (Form 8910)
This tax credit can be up to $8,000 and is in your best interest to claim it if you qualify. As the name suggests, it’s a way to incentivize small business owners to purchase an “alternative fuel source” vehicle. Note that the cars that fall into this category would be those that use hydrogen fuel-cell technology, not hybrids or electric vehicles since those are still considered to be “traditional” types of fuel.
Tax Credits for Qualified Research Expenses (Form 6765)
Depending on the specific type of small business you’re running, you may have to engage in a significant amount of research and development in order to better serve your own customers. The United States government would like to encourage you to do as much of that as possible, which is how the “Credit for Increasing Research Activities” came into being.
In order to qualify for this credit, you need to engage in domestic research and development for the purposes of things like certification testing, environmental testing, developing or applying for patents, prototype and model development, and more. Research associated with the development of new or even improved products, processes, and formulas would also qualify.
This tax credit can cover up to 20% of all of your related expenses that fall under this umbrella.
The New Markets Tax Credit (Form 8874)
Last but not least, we have the New Markets Credit — one designed to encourage investment in Community Development Enterprises and Community Development Financial Institutions, otherwise known as CDEs and CDFIs, respectively. These are the types of organizations that assist lower income communities around the country and, obviously, they need all the help they can get.
Many of all qualified projects involve either purchasing, renovating or constructing real estate in areas that have a 20% poverty rate or with median family incomes that don’t exceed 80% of that of the larger area. This means building or renovating hospitals, for example, or industrial buildings that go on to create jobs.
While all these small business tax credits are important, they are only a small percentage of tax credits that may be available to you. Contact Total Accounting at firstname.lastname@example.org for more information on how to use tax credits for your business. Tax credits will help put more money in your pocket!