Tax credits reduce the amount of tax you owe, whereas deductions lower your taxable income. There are several highly valuable business tax credits you might not know about that could cut your tax bill.
Work Opportunity.
By hiring employees who have consistently faced significant barriers to employment, your company may be eligible for the Work Opportunity Tax Credit. Generally, the credit equals 40% of the first $6,000 of wages paid to the qualifying employee, with a maximum credit of $2,400 per worker. You and your employee will need to complete Form 5884 to notify the IRS that you plan to claim this credit.
Empowerment Zones.
If your business operates in a designated empowerment zone (an economically depressed area as determined by the IRS), you may be eligible for a tax credit of up to $3,000 per employee. To qualify, the employee must complete most of their work for the employer in the empowerment zone, and their principal residence must also be in the designated area.
Health Insurance.
To encourage small companies to provide health insurance to employees, the IRS offers the Small Business Health Care Tax Credit worth up to 50% of the cost you pay for employees’ premiums. There are several requirements for claiming this credit, including having fewer than 25 full-time equivalent employees and paying at least 50%of employees’ premium.
Employee Retention.
One of the numerous corporate tax breaks that came out of the COVID-19 legislation was the Employee Retention Credit. If your business was shut down by government orders or sustained decreased sales, but you continued to pay employees, you could be eligible for up to $26,000 in tax credits per employee for 2020 and 2021. Although the eligible pay periods expired in September 2021, you can still file amended payroll tax returns to claim any credit to which you’re entitled. The calculations for this credit are tedious, so reach out to us if you believe you qualify for the Employee Retention Credit.
Still have questions?
Contact Boris Benic and Associates today. We can provide you with more information about all the valuable business tax credits for which you might qualify.