You can save quite a lot of money by using tax credits. There are plenty of business owners who haven’t tried credits and they don’t know how beneficial this option can be. There are several small business credits that will definitely help you keep more of the valuable dollars you work hard for. All of the following credits are accessible in the US.
Faster Tax Deductions
Before dwelling into tax credit options, it is essential to understand the difference between tax deductions and tax credits, as this is one of the most controversial topics in the field of small business taxes.
To cut it short, tax credits are similar to fast tax deductions. However, they are much better, because tax deductions usually reduce your taxable income. It means that your total tax will be reduced by a certain percentage, which depends on your range of tax bracket.
Tax credits are always a dollar for dollar. Thus, tax credits reduce your actual tax, which means every dollar reduces your tax by a dollar, not less.
Tax deductions may only be considered valuable when your taxable income increases. If you are in the 20% bracket, every dollar deduction reduces your tax by 20 cents. However, bear in mind that tax credits are more valuable for those having lower brackets. So the following list of small business tax credits is aimed to help every small business owner.
Alternative Motor Vehicle Credit
Such type of credit up to $8000 may encourage you to buy an alternative fuel source car. However, it doesn’t spread on hybrids and electric cars as all of them use conventional fuel sources. Currently, only one Honda FCX Clarity, which is working on hydrogen fuel-cell technology, is eligible for this credit. So think twice before buying your next company vehicle.
Alcohol-Based Fuels Credit
This particular type of credit is scaled from the costs connected with the alcohol fuels production such as methanol and ethanol. Moreover, this credit may be applied only in case you are taking part in the production of fuels, not in their consumption.
Disabled People Access Credit
Business owners who are related to giving access to their business for disabled people can be eligible for this type of credit. The maximum credit you can get is $5000 on $10000 of expenses.
Provided by Employer Child Care Credit
This is a tax credit especially business owners who pay the child care expenses for their workers and employees. Such credit is for a maximum of $150000 on 25% of expenses a year.
For instance, employees may quickly notice a benefit from provided by employer child care credit rather than from Child and Dependent Care credit, which they can apply for on their personal tax return.
As a quick example, if a worker pays $2000 for childcare, the maximum credit for them will be $700 ($2000*35%). The worker actually paid $1300 for their child care services ($2000 – $700).
In case business owner pays $2000 for the employee’s child to a child-care facility, the worker saves the $1300. Note that the average full-time child care is about $6000.
Although payments in the child-care over $5000 are considered as gross wages, the savings for lots of business owners will be substantial.
Rehabilitation and Reforestation Investments Credit
This type of credit is as a rule 10% of the expenses and maximum $10000 a year. These are credits for investments in alternative energy, reforestation, and rehabilitation of the building.
Work Opportunity Credit
These tax credits are offered to business owners who hire workers with previous problems during the employment process. A lot of job hunters experience different barriers and problems to employment during their working careers. However, it doesn’t mean finding a job for them is something impossible.
For instance, lack of transportation is considered as a temporary difficulty, while disabilities, education or child-care are much more straitened situations. The tax credits, in this case, are counted based on the worker’s wages and can be maximum $9000 savings for over two years.
To sum it up, take some time to carry out a tax strategy and plan to make your small business grow and develop. Because, as you know, everything is possible, and you can even run business on a single $100 bill!