What tax credits might my small business qualify for?

Tax credits are more valuable than deductions because they reduce your tax bill dollar for dollar rather than just lowering taxable income. The challenge is that most small business owners don’t realize how many credits are available or assume they don’t qualify. Here are the ones worth looking into.

The Small Business Health Care Tax Credit applies if you have fewer than 25 full-time equivalent employees, pay average wages below a certain threshold, and cover at least 50% of employee health insurance premiums through a SHOP marketplace plan. The credit can be worth up to 50% of the premiums you pay. Many small employers who provide health coverage never claim this because they don’t know it exists.

If you started offering a retirement plan in the last few years, the Retirement Plan Startup Credit under the SECURE Act can offset up to $5,000 per year for three years in plan setup and administration costs. This applies to businesses with 100 or fewer employees. If you’ve been thinking about setting up a 401(k) or SIMPLE IRA, this credit significantly reduces the cost of getting started.

The Work Opportunity Tax Credit rewards businesses that hire employees from certain targeted groups, including veterans, individuals receiving government assistance, and ex-felons. The credit ranges from $2,400 to $9,600 per qualified hire depending on the category. You need to file IRS Form 8850 before or on the employee’s start date, so this one requires planning ahead.

The Disabled Access Credit helps small businesses with $1 million or less in revenue (or 30 or fewer full-time employees) offset costs of making their business accessible. If you’ve installed a ramp, widened doorways, or made other ADA-related improvements, you may be able to claim up to $5,000 per year.

Energy-related credits have expanded significantly in recent years. If you’ve purchased qualifying electric vehicles for business use or made energy-efficient improvements to a commercial building you own, there are credits available that many business owners overlook entirely.

The R&D Tax Credit isn’t just for large corporations. Small businesses with gross receipts under $5 million can apply a portion of the credit against payroll taxes, which is valuable even if you don’t owe much income tax yet. If your business develops new products, improves processes, or creates software, this is worth exploring.

The key with tax credits is that most require specific documentation and some need to be elected or filed with particular forms at particular times. You can’t just claim them on your return after the fact without the supporting records. Working with a CPA through proactive tax planning is the most reliable way to identify which credits apply to your situation and make sure you meet the requirements before deadlines pass.

Every business is different, and the credits you qualify for depend on your size, industry, spending, and hiring. A construction company with ten employees has a different credit profile than a solo consultant. Our Tampa Bay bookkeeping and tax services team regularly reviews client situations to catch credits that would otherwise go unclaimed. Even one overlooked credit can save hundreds or thousands of dollars in a single year.