Even experienced small-business owners can face financial challenges at some point during the lifetime of their company. One way to help offset costs is by uncovering qualifying tax deductions. Companies leave billions of tax credit dollars unclaimed each year due to not knowing they qualified, or not having the experience or time to handle the administration involved. To help remedy this, it’s important to be aware of which ones you qualify for as well as the requirements for eligibility. You may not know it, but there could be money out there waiting for your business to claim in time for tax filing season.
Here are some common tax credits that are available to qualifying businesses:
- Federal Work Opportunity Tax Credit: Employers who hired qualified employees before January 1, 2014 and after December 3, 2011 could qualify for this deduction. It’s typically 40 percent of the first $6,000 paid to each of the qualifying employees during the first year of employment. Employers who hire qualified veterans could see a credit of up to $9,600.
- Health Care Tax Credits: As part of the Affordable Care Act, qualifying businesses with less than 25 full-time equivalent employees can deduct up to half of their contributions toward employees’ health insurance premiums (up to 35 percent for tax-exempt employers), as long as they offer coverage through the Small Business Health Options Program. Learn more about your small business tax credit options.
- Section 179 Expensing and Bonus Depreciation: This tax deduction allows small business owners and self-employed individuals to deduct the full cost of depreciable assets (such as property, furniture, vehicles, and equipment) up to $25,000 with a $200,000 investment ceiling in 2014. The limit for qualifying purchases made in 2013 is $500,000.
- Retirement Plan Expenses: Tax benefits are available when you establish a retirement plan for you and your employees. First, you could receive tax deductions for plan contributions that you put on your personal income tax return. Additionally, costs associated with establishing a plan are deductible by up to 50 percent (up to $500 per year) during the first three years of plan implementation. Business owners with less than 100 employees are eligible.
- Expenses for Going into Business: Current business expenses such as advertising, transportation, facilities, and fees for consultants can be deducted. To get a business up and running, capital expenses can be deducted up to $5,000 the first year you are in business.
Other common deductions for business owners can include home office expenses, business-related software and subscriptions, business use of a cell phone and car, and legal expenses.
At the state level, many states offer tax credits for businesses that create jobs, conduct research and development, or make certain investments. A tax professional who is familiar with credits at the state level can help ensure you are identifying all of the deductions your business can take.
Of course, this is not an exhaustive list. Businesses can use professional tax credit services to discover additional tax credit opportunities, feel more confident about determining their eligibility for tax deductions, and claim credits. Maintain proper records and take advantage of tax professional services to help you maximize your tax filing.