One of the things business owners like hearing when it comes to taxes is "tax credit," as it signifies something good. Even though some business owners might confuse tax credit with deductions, a tax credit is better than a deduction.
What are Tax Credits?
Individuals and businesses get a tax credit, which serves as an incentive for some activities. For instance, the purchase of some energy efficient appliance or vehicle, going green, etc., might qualify a business or individual for the tax credit.
Here are various tax credits that businesses could qualify for:
Health Care Tax Credit for Small Business
The Obamacare act, also known as the affordable care act, encourages small business owners to give health insurance or maintain their coverage. It is a tax credit for health insurance targeted at small employers.
Every small business that pays half of the single coverage cost for their employee qualifies. You will get a credit of 50% of the health insurance paid for your employees if your business meets the criteria. Here are other measures to be eligible.
Full-time employees must be less than 25
For a tax year, your average wage should be below $54,200
You use an IRS qualified arrangement to pay for the premiums.
Self-employed folks can also enjoy such deductions for themselves, their partner, or dependents. This is available in the form of self-employed health insurance deduction, which takes care of dental insurance, medical insurance, and other care policies that are long term. There is the opportunity to deduct these costs till the total of your self-employment income.
Tax Credit for Research and Development
This is one of the oldest tax credits available for businesses, even though many companies hardly take advantage of it, let alone realize that they qualify. The idea of this credit is to encourage research activities even though many small businesses hardly take advantage of it.
A business does not have to be large to qualify as the credit is available for sole proprietors, partnerships, and other nonpublic corporations. Qualification does not have to be about scientific research at the traditional level.
Companies that engage in the following also qualify:
Studies and survey
Product development
Improvement of reliability, function, and quality of product
Boosting business performance
Engaging the services of third party researchers or employees specializing solely in research
For an activity to qualify, they need to show a link between the expenses they claim and the specific research activity. This credit can be as much as 20% of the research expense that qualifies, which gets up to $250,000 each year.
Business Tax Deductions and Credits for “Sustainability”
There are changes one can make to a business in terms of going green and equipment choices to make it more friendly to the environment and energy-efficient. This is one of the tax credits that can benefit a business. You not only get tax credits, but there are also some deductions that you might qualify for as well due to such changes you made to your business operation.
For instance, the use and installation of energy-saving activities like solar energy, fuel cells, wind, etc., can qualify one for business energy tax investment credit.
Qualification involves owning or building equipment that will meet some specified standard and quality.
Access for Disabled Credit Tax Credit
Businesses that make adjustments to their location or facility to take care of customers with disabilities might qualify for tax credits for disabled access.
For a business to qualify, the previous year's revenue must be equal to or less than $1 million, and the number of full-time workers must not be above 30.
The business might also qualify for some tax deductions when it removes some transport and architectural barrier to workers and visitors. This deduction is in addition to the tax credit.
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