What You Need to Know About Claiming Tax Credits as a Small Business Owner

If you are a small business owner who has not taken advantage of all of the tax credits you may be entitled to, then it is time to explore your options. Read below for a comprehensive guide to understanding tax credits, knowing where your small business falls, and how to avoid common mistakes when filing.

Understanding Tax Credits

All businesses, no matter how big or small, owe taxes to the government every year. Tax credits reduce the amount of taxes a business has to pay depending on the type of business, who it employs, and other factors. A tax credit will directly lower a small business’s tax bill dollar-for-dollar. These tax credits can be a game changer for small businesses as they alleviate the burden of paying a large amount in taxes at the end of each year. These savings can help small businesses grow, give loyal employees bonuses, and put money aside to reinvest in the business.

Types of Tax Credits for Small Business Owners

Below is a list of potential tax credits for small businesses. One or more may apply to your small business, but it is important to understand each tax credit to see if they apply to you.

General Business Tax Credit

Depending on your business activities in the last year, this is a credit that may apply to your small business. This tax credit is for a combination of business activities from research to investments in green energy. For instance, you can use the calculator at this website www.g6consulting.ca/sred-calculator/ to see how much of a tax credit your small business could qualify for. Once you have a detailed list of all of your recent business activities, you can apply for this kind of tax credit.

Work Opportunity Tax Credit

This tax credit is for businesses that intentionally hire marginalized groups like veterans and individuals on government assistance. This tax credit was created to incentivize employers to create a more equal-opportunity work environment for all. 

Small Employer Health Insurance Credit

For small businesses that provide health insurance to their team of employees, they may qualify for this specific tax credit. This is specific to very small businesses that have fewer than 25 employees and cover at least 50% of the employees’ medical insurance. It takes a large chunk of money out of the profits to support employees in this way, so receiving this tax credit can be a big relief to small business owners. 

Disabled Access Credit

If your business is in a physical location and you either have employees with disabilities who you have made accommodations for and/or you have made sure your building is accessible to customers with disabilities, you may qualify for this tax credit. 

Credit for Paid Family and Medical Leave

By offering your team of employees paid leave, you may be able to get some of that money back with this tax credit. This credit is protected under the Family and Medical Leave Act.

Research and Development

Small businesses, especially startups, need funding to be able to do research and development to create products that are useful in society. If you have proof that your business has been engaged in R&D, you may qualify for this credit.

How to Claim Tax Credits

Identify Eligibility Credits

After going through the list above, identify the credits you believe your business is eligible for. Do a bit of extra research on each type of tax credit and gather the documents you need to provide proof of eligibility. 

Consult a Tax Professional

Work with a tax professional to make sure that all of your application documents are correct. This is especially important if you are a new business owner and this is your first time going through the tax credit process.

Complete the Necessary Forms

To apply for tax credits, you will have to complete official IRS tax forms. Make sure that you work with a tax professional to fill them out correctly and submit them on time.

Common Mistakes to Avoid

Missing Documentation

The last thing you want is to go through the process of filing for a tax credit only to realize you do not have all of the correct documentation. Make sure to create a list of everything you need so that nothing is forgotten. You should also always speak to a tax professional to double-check that you have everything you need.

Not Seeking Professional Help

If you do not choose to work with a tax professional, especially if it is your first time filing as a small business, you may miss important details and miss out on your tax credits. Navigating taxes and tax credits can be very confusing, so it is worth asking for help.

Tax credits are one of the best ways that small businesses can get financial relief at the end of the tax year. You work hard to run a successful small business, so getting a small reward for your efforts through a tax credit will be a blessing for you and your employees.

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