Tax credits are an important part of doing business. They are a way for a company to save money on their tax obligations. Many businesses are not aware of all the tax credits they may qualify to receive. It’s important to understand there is a difference between a tax credit and tax deduction.
Tax Credits
A tax deduction is designed to decrease the amount of a company’s taxable income. This means for every dollar a company has in a tax deduction, the amount of income they will pay tax on lowers. This is determined by a company’s tax bracket. Tax credits decrease the actual amount of tax a company will be required to pay. Every dollar a company gets in a tax credit will decrease a dollar in tax that a company may be required to pay.
Work Opportunity Tax Credit (WOTC)
This is available to companies who hire members of certain groups as well as qualified veterans. To qualify for this tax credit, a company must hire a full-time worker who qualifies under the WOTC. A business will receive a credit that is equal to approximately 40 percent of the worker’s first years wages. This can be as much as $6,000. Should a company hire a disabled veteran, the credit may be as much as $9,600.
Employer-Provided Child Care Tax Credit (EPCCTC)
A business will qualify for this tax credit if it directly pays for the child cares cost of its employee’s children. The credit equals 25 percent of child care costs. A company can get a credit of up to $150,000 annually for each employee. If the company is incorporated, and the owner’s partner is also and an employee, they may also qualify for the same EPCCTC provided to the company’s employees.
Disabled Access Credit
This tax credit is provided to a business that renovates its premises so that it is more accessible to all individuals with disabilities. This needs to be done in accordance with the requirements set forth by the Americans with Disabilities Act (ADA) A small business will qualify for this credit if its gross revenue is under a million dollars, and it employs less than 30 full-time employees during the tax year. This credit covers approximately 50 percent of the initial $10,000 of qualified expenses associated with the renovation. The maximum credit is $5,000.
Business Health Credit
A business is able to obtain a credit for up to 50 percent of health insurance premiums it pays for their employees. In order to qualify for this credit, a company must pay health insurance premiums for their employees. These health plans must be qualified through the Small Business Health Options Program (SHOP) marketplace. If not, the health plan must qualify for an exception. This credit is offered to eligible employers for two tax years that run consecutively.
Research Tax Credit (RTC)
This is a basic credit that equals up to 20 percent of a businesses expenses for qualified research expenses. A company is able to choose to use qualified research expenses that are more than 50 percent of its average for the three prior years.
Alternative Motor Vehicle Credit (AMVC)
A company is able to get a tax credit of up to $8,000 for the purchase of vehicles that are operated on an alternative fuel source. The AMVC does not apply to any electric vehicles or hybrids because they utilize conventional fuel sources. The IRS, at this time, only recognizes vehicles that utilize hydrogen fuel-cell technology such as the FCX Clarity that is manufactured by Honda
Welfare-to-Work Expenses Credit (WTWEC)
This is a business credit available to companies that hire employees who historically face significant barriers to employment. Some of the barriers are a lack of transportation, education. Other barriers are child-care needs, disabilities and more. The WTWEC is determined on wages paid to the employees. This can provide a company with up to a $9,000 savings during a two-year period.
Qualified Research Expense Credit (QREC)
This is designed to encourage companies to participate in domestic research and development. How the QREC is calculated is complex. It is also able to provide a company with substantial tax savings. The definition of the QREC is broad but involves a number of different activities. This could be developing new or improving formulas, products as well as prototypes and models. Building or improving manufacturing facilities. Developing new technology, environmental testing, certification testing and more are ways a company can benefit from the QREC.