Is Your Business Taking Advantage of These Savings?

Running a small business comes with myriad costs and what often feels like few avenues for saving. However, there are many federal tax savings programs designed to save small business owners significant sums of money. Business owners and managers should work with a tax professional to maximize savings through these programs. 

Work Opportunity Credit

This particular tax credit incentivized hiring individuals that have traditionally faced barriers to employment. It offers a tax credit of up to $2,400 per eligible employee hired. To be eligible, new hires must be from a traditionally targeted group, including food stamp recipients, veterans, and ex-felons. Small businesses can apply for the Work Opportunity credit using IRS form 5884. 

Employee Retention Tax Credit

The ERC tax credit is another way employees can save a business at tax time. This particular credit was a product of the CARES Act. It was designed to help companies to retain employees during the COVID pandemic. The ERC applies to wages paid between March and December 2020. However, some companies can still benefit from it through retroactive filing.

If a business qualifies, it can deduct up to 50% of an employee’s wages during that time, up to $10,000 per employee. This is in addition to funds received from Payment Protection Plan loans. Like the Work Opportunity Credit, businesses apply for the ERC on a 5884 form.  

Credits for Small Employer Pension Plan Startups

Businesses with fewer than 100 employees may want to consider offering a qualified retirement plan. The Credit for Small Employer Pension Plan Startups is a federal tax credit worth 50% of the startup costs for qualified retirement programs, with a maximum amount of $5,000. 

 Alternative Fuel Credits

Renewables are increasingly popular, and the government supports their use in business through several tax credits. The 2022 Inflation Reduction Act provided small businesses with a plethora of savings opportunities for their investments in green energy. These include:

• Increases to the amounts allowed under the Energy-Efficient Commercial Buildings Deduction 
• Expanding the Energy-Efficient Commercial Buildings Deduction to include charitable organizations and nonprofits
• Tax credits for purchasing electric and fuel cell electric vehicles

• up to $7,500 for passenger vehicles and light trucks
• up to $40,000 for vehicles over 14,000 pounds

To take advantage of these savings, you should save all receipts from energy-efficient renovations and investments in renewable infrastructure (solar panels, wind turbines, etc.). It is also a good idea to research vehicle qualifications if you plan to take the electric car credit since limits can differ based on several factors. Consult your tax professional if you have any questions. 

Credit for Small-Business Health Insurance Premiums

If you haven’t taken advantage of this tax credit, then you are definitely missing out. It is worth half of employer-paid insurance premiums, and businesses can take it for up to two consecutive years. To qualify, a company must:

• Have purchased a qualified plan using the Small-Business Health Options Program Marketplace
• Have fewer than 25 full-time employees (or the equivalent)
• Pay at least half of the cost of employee health insurance premiums
• Pay average full-time wages under $55,000 per year 
• Use form 8941 to apply

Qualified Business Deductions

Tax credits are an excellent way to drastically lower a business’ tax burden; however, owners should not overlook the value of qualified deductions. While these do not come directly off a tax bill, they do lower business income, which means fewer taxes due. It can also potentially move a business’ profits into a lower income tax bracket for greater savings. 

Some of the most commonly claimed deductions include those for travel, supplies, operating expenses (rent, utilities, etc.), vehicles, advertising, and salaries. Talk to your accountant to verify if an expense qualifies before including it, and be sure to save receipts or otherwise document spending.  

Many federally-funded tax programs can save small businesses significant amounts of money. Investments in hiring and retaining employees, renewable energy, and health insurance are just a few of the costs that can lower your annual tax bill.