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Updated: April 25, 2024

Small business tax credits: What they are, common examples, and how to claim them

Article provided by: MainStreet

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When it comes to tax filings and compliance, there is already a lot for small business owners to keep in mind. That said, many don’t realize that their business may qualify for tax credits ⁠— and that claiming these can add up to significant savings. And for those who are interested in learning about the tax incentives they could be taking advantage of, where do you start?

 

In this guide, we’ll walk you through the basics of what tax credits are, some of the most common small business tax credits worth learning about, and how to claim them if your business qualifies.

What are tax credits?

Simply put, a tax credit is an amount of money that can be deducted dollar-for-dollar from your business’s tax liability, offsetting the amount you owe the government when it comes time for you (or your accountant or bookkeeper) to file an annual tax return. It’s worth noting that tax credits differ from tax deductions in a couple of ways.

  • Deductions are pre-tax and decrease your taxable income ⁠— so the amount of benefit you’ll see varies depending on your business tax bracket and income.
  • On the other hand, tax credits reduce the amount of tax you owe dollar-for-dollar so you can see an even bigger benefit.

 

Now that we better understand what tax credits are, let’s find out why a business may want to take a closer look at them.

How tax credits benefit your business

In a nutshell, each tax credit serves as a financial incentive, allowing businesses to reduce their tax liability and retain more of their hard-earned revenue. The scope and eligibility of these credits can sometimes vary. For example, some are designed exclusively for small businesses to take advantage of, while others can be claimed regardless of the number of employees or revenue.

 

The takeaway is that businesses of all shapes and sizes can benefit from what tax credits have to offer. In many cases, funds can be reinvested throughout an organization, from developing new technologies and investing in employee retention to providing employee perks like healthcare and retirement savings.

Common small business tax credits

So what are some of the credits that are worth considering? While not an exhaustive list, here are some of the most common tax credits that many small businesses may qualify for.

 

R&D Tax Credits

According to the US Chamber of Commerce, less than three in ten small businesses who qualify for savings through an R&D Tax Credit are taking steps to claim it. Research and Development (R&D) Tax Credits reward businesses engaged in research and development, offering a significant reduction in tax liability. This incentivizes innovation, allowing businesses to reinvest saved funds into further research and development initiatives.

 

Retirement Plans Tax Credits

Have you thought about offering your employees access to a retirement savings program but need to keep an eye on your business’s bottom line? Retirement Plans Tax Credits incentivize businesses to establish and contribute to retirement plans, fostering financial well-being for both employers and employees. This credit encourages businesses to invest in their team’s long-term financial security.

 

Small Business Health Care Tax Credit

Health insurance is often one of the benefits that appears toward the top of employee wish lists. If you have ever considered offering a plan, the Small Business Health Care Tax Credit can go a long way toward reducing the cost of providing health insurance to employees. This credit is designed to help small businesses prioritize employee health without straining their financial resources.

How to unlock savings by claiming tax credits with MainStreet

Identifying and claiming eligible tax credits can be time-consuming if you plan to tackle it on your own. This is because each individual tax credit requires its own form to be completed, and all of the credits must be summarized and submitted to the IRS via Form 3800. The good news is that we can help keep this process from getting complicated while keeping you in compliance with the rules set by Uncle Sam.

 

Ready to learn more? We’re excited to announce that OnPay has partnered with MainStreet to make it easy and more accessible for our small business clients to claim eligible tax credits. Their experts help maximize your tax savings all while ensuring you’re compliant with IRS guidelines. They’ll even work with your accountant to prepare the paperwork.

 

If you’re interested in finding out what credits your business might qualify for, it’s easy to get started with MainStreet. It takes less than 10 minutes to check eligibility, and there’s no upfront cost.

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