The Internal Revenue Service (IRS) offers dozens of tax credits that apply to small businesses, some of which are more popular than others. A tax credit will save you more than a tax deduction. Whereas you subtract a deduction from your taxable income, you subtract a credit directly from your total tax due. You claim business tax credits by filing IRS Form 3800 and various other forms.
The Work Opportunity Tax Credit
The Work Opportunity Tax Credit rewards businesses that hire from certain groups such as food stamp recipients, low-income felons, veterans, and young people from disadvantaged backgrounds. The tax credit equals 40 percent of each employee's first $6,000 in wages during the first year of employment, as long as the employee has worked at least 400 hours during the year.
Tax Credits for Employee Benefits
If your employees receive tips, you may be able to claim a tax credit for the employer portion of Social Security and Medicare taxes you pay on these tips. You can also claim a credit if you provide child care facilities or services to your employees, pay their health insurance premiums, start a pension plan, or pay an employee who is absent while serving on active duty in the armed services. Certain limitations apply to these credits.
Environmentally Friendly Business Practices
The IRS offers many tax credits that encourage businesses to promote the efficient production of energy. For example, you may be able to claim a credit if your business sells or uses biodiesel or renewable diesel fuels, if it manufactures certain energy-efficient appliances, or if it builds energy-efficient homes. Tax credits are available for certain types of environmentally friendly projects, such as gasification projects. Credits are also available to businesses that increase their budgets for energy-related research.
Apply Unused Tax Credits to Other Tax Years
Annual limits apply to many of the foregoing tax credits. In many cases, however, you can use credits that exceed these annual limits to reduce taxes due for future tax years. You can also apply unused tax credits to taxes due during any of the previous five tax years, as long as your business qualifies under the Small Business Jobs Act of 2010. A qualifying business under this Act must be a sole proprietorship, a partnership, or a corporation whose stock is not publicly traded. Its average annual gross receipts must not have exceeded $50 million during the last three years. You can claim such "carry bac" credits by filing amended tax returns.
A Tax Lawyer Can Help
The law surrounding small business tax credits is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a tax lawyer.