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Closely Held Businesses

Five Tax Credits Every Small Business Owner Should Know About

By May 31, 2016No Comments

Tax credits are a powerful way to reduce your tax liability.  While deductions reduce your taxable income and therefore reduce your tax by a percentage of that deduction, credits cut your bottom line tax number dollar-for-dollar.  To take advantage of any applicable tax credits, a business owner must be aware of the opportunity. Click here to learn more.

  1. Credit for Increasing Research Activities

This credit, often referred to as the R & D Credit, is available for businesses conducting research that is undertaken to discover information that is technological in nature, and its application is intended for use in developing a new or improved business component.  Expenses that qualify for the credit include wages, supplies, and a percentage of contract research expenses.

  1. Work Opportunity Credit

This credit is available to employers who hire and retain veterans and other individuals from specific target groups that have significant barriers to employment. The tax credit depends upon the target group, the amount of wages paid in the first year of employment, and the number of hours that individual worked. There is also a maximum tax credit that a business can take depending on the target group.

  1. Qualified Plug-in Electric and Electric Vehicle Credit

Qualified plug-in electric motor vehicles, including passenger vehicles and light trucks, purchased for use and not for resale are eligible for this tax credit. For vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus additional amounts, depending on the capacity of the vehicles battery, with a limit of $7,500. The credit begins to phase out for a manufacturer when at least 200,000 qualifying vehicles have been sold for use from that manufacturer in the United States.

  1. Credit for Small Employer Pension Plan Startup Costs.

Small employers who establish retirement plans for their employees are eligible for this tax credit. The business must have 100 or fewer employees and have not maintained a qualified retirement plan during the three-year period immediately preceding the new plan. The credit is equal to 50 percent of the costs incurred in creating the new qualified plan up to a maximum credit of $500 in each of the first 3 years.  Note that any costs incurred to set up these plans that are not used in calculating this credit are deductible as an ordinary business expense and will reduce your taxable income.

  1. Investment Tax Credit – Alternative Energy Sources

If you purchase depreciable, energy-saving property for use in your business you may be eligible for a tax credit amounting to 10% of the total cost. This includes equipment that uses solar energy to generate electricity, heat or cool a structure, provide hot water, or provide solar process heat. If the qualifying property is prematurely sold or disposed, you may need to pay back any credit received to the IRS.

If you believe your business can benefit from any of these tax credits and wish to learn more please contact us at 858-558-9200.

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