Taking all of the tax deductions and credits you’re entitled to can make a huge difference in your tax bill, and your business’s bottom line. But there are some deductions even seasoned entrepreneurs aren’t always aware of. To save you time hunting for deductions, we did the work for you and flagged a few of the most common ones.
The following seven tax credits and deductions can not only save you some money, but may even inspire you to update the way you run your business.
First, let’s clarify the difference between tax deductions and tax credits:
- Tax deductions are taken out of your taxable income, reducing the amount of income that is taxed.
- Tax credits are subtracted from the tax you owe, reducing your tax bill on a dollar-for-dollar basis.
Tax Credits for Small Businesses
You may be eligible for federal tax credits for:
1. Providing Disabled Access to Your Business
Remodeling your business to provide access for people with disabilities (such as building a handicapped access ramp or widening doorways) can be costly. Fortunately, the Disabled Access Credit can help. It’s available to companies that have 30 or fewer full-time employees and earnings of $1 million or less in the previous year. If you fit this description, you can take the Disabled Access Credit for every year that you spend money providing access to people with disabilities.
→ Learn more about the Disabled Access Credit here.
2. Hiring Workers From Certain Targeted Groups
The Work Opportunity Tax Credit is intended to motivate more businesses to hire employees who tend to have difficulty finding employment. Targeted groups include welfare recipients, former felons, military veterans and the “long-term unemployed” (people who have been unemployed for at least 27 weeks). Your company may be eligible for a tax credit of $1,200 to $9,600 per qualified employee, with no limit on the number of employees you can claim.
→ Learn more about the Work Opportunity Tax Credit.
3. Wages to Active Duty Uniformed Services Members
Are any of your employees active duty members of the military? If you’re paying them their full wages even while they are in training for active duty or actively serving in combat, this is known as “differential wage payments.” You may be able to claim a tax credit of 20 percent of up to $20,000 of each employee’s differential wage payments.
→ Learn more about the Employer Wage Credit.
4. Setting up a Retirement Plan for Your Employees
Opening a Simplified Employee Pension (SEP) plan, SIMPLE IRA or qualified retirement plan for your staff is a great perk for them. It’s also a good deal for your business: You may be able to claim a tax credit for 50 percent of the plan’s startup costs, including setup fees, administrative fees and the cost of educating employees in how to use the plan.
→ Learn more about the Retirement Plans Startup Costs Tax Credit.
5. Buying Plug-In Electric Drive Vehicles for Your Business
Plug-in electric drive motor vehicles that meet the IRS criteria, including passenger vehicles and light trucks, may qualify for a tax credit of $2,500 to $7,500 per vehicle. This credit can be taken for any eligible vehicle acquired after December 31, 2009.
→ Learn more about the Plug-In Electric Drive Vehicle Credit.
Tax deductions for small businesses
You may be eligible for federal tax deductions for:
6. Startup Expenses
If you recently started a business or are still in the pre-startup stages, you may be able to take tax deductions for some startup-related expenses, as long as they:
- Are paid or incurred before the day you opened for business
- Would be deductible for your business if it was already operating
Startup expenses can include research, such as doing market research, conducting surveys, getting advice from attorneys, doing due diligence before buying a franchise, training your staff or advertising your grand opening. (You can’t deduct business equipment as a startup expense; instead, it’s considered a capital expenditure.)
You can also deduct organizational expenses—the cost of setting up a partnership, corporation or LLC. Up to $5,000 of startup and $5,000 of organizational costs are deductible; the $5,000 deduction is reduced by the amount your total startup or organizational costs exceed $50,000.
→ Learn more about deducting startup and organizational costs.
7. Home Office
The IRS recently made it simpler to calculate the home office deduction, which is available to both homeowners and renters. You can deduct $5 per square foot of your home used for business, up to 300 square feet, as long as your home office is 1) regularly and exclusively used for business and 2) your principal place of business.
→ Learn more about the Home Office Deduction.
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.