Businesses have access to numerous federal tax credits. The main problem businesses face when they want to take advantage of them is that there are so many of them, and the guidelines for doing so can be overwhelming. The financial benefits are worth it for businesses willing to go through with the claims process. These credits offset your tax dollar-for-dollar, meaning they reduce your tax credit significantly.
Why Take Advantage of Business Tax Credits?
A major reason to take advantage of these credits is that they put money back into the bank accounts of businesses. Businesses can then use the money in different ways, including investing in new employees, expanding, or paying their debts.
The second reason is that they help motivate businesses to innovate. Research and development tax credits are especially useful for this. They are made available by the federal government to offset the cost of developing new products. Knowing that some of their research and development investment will be “refunded” by the government incentivizes businesses to take advantage of them.
By investing in numerous areas of the business using tax credits, businesses can also provide better products and services to their customers. Being able to release better products while improving existing ones using the tax credits makes this possible.
Popular Tax Credits Available to Businesses
Although there are many of them, there are some tax credits that businesses can start taking advantage of right now.
Work Opportunity Credits
The federal government offers these tax credits to encourage businesses to hire armed service veterans and people who would otherwise have difficulty finding employment. Some people with difficulty finding employment include high-risk youths, ex-felons, SSI recipients, and food stamp recipients.
The government checks certain things when providing these tax credits. They include how much the person is paid, how many hours they work, and how long they have worked for your business. The government gives tax credits of $9,600 per qualified person hired.
Work opportunity credits can be great for businesses looking to expand and that want to give back to their communities by hiring people who do not have access to such opportunities.
Research and Development Credits
Suppose your business creates or improves processes, products, formulas, technologies, inventions, and software that it intends to lease, sell, use, or license. You can claim research and development (R&D) tax credits in these cases.
A common misconception about R&D credits is that they only apply to big businesses or high-tech companies. The truth is that they can be used by businesses of all sizes as long as they have completed qualified research. Another thing to note is that businesses can claim these tax credits whether their research was successful or not.
Businesses can also carry their R&D tax credits forward for up to 20 years. However, they should carry them back one year and then file amended tax returns for the years they did not claim the credits.
Getting the tax credits requires documentation and following the right procedures. For this, you will need a specialist tax partner. Such companies can help businesses like yours complete the required R&D credit study to find the data you need to support your claim. You can click here to talk to the specialty tax professionals at Tri Merit so you can get the process started.
The government wants businesses to be as energy efficient as possible. To encourage this, they provide energy credits to businesses that demonstrate they are doing their part in reducing their energy demands.
Any business that uses and saves energy qualifies for these credits. These include:
- Any company with renewable energy facilities. These are properties that produce renewable energy.
- Home builders who put up energy-efficient homes, including manufactured and site-build homes.
- Commercial building owners and tenants. Both can get energy credits for using efficient hot water systems, ventilation, cooling, heating, and lighting systems.
How to Claim Tax Credits
Claiming tax credits requires working with tax professionals who will review your documentation and find the right credits to claim. Since there are different types of credits, you should research with your partner’s help to find out which credits to pursue.
Documentation is crucial because you need to prove things like the research you have done in the case of R&D tax credits. You also have to prove that you hired a person in a targeted group or a veteran in the case of the work opportunity tax credit.
Federal tax credits help reduce the amount of credit you pay and apply to all businesses. Talk to a tax professional to find areas where you can claim these credits in your business.