Tax credits are important for business. For each tax credit dollar, the tax payer will receive one dollar in tax reduction. There are certain tax credits earmarked specifically for small business use. Let’s review each one as well as the definition of small business as each credit may have different assumptions.
1. Research Credits – The IRS recently issued additional guidance (IR-2017-70, March 30, 2017) explaining how small businesses can take advantage of research credits. There is a new option available that allows small businesses to apply part or all of their research credit against their payroll tax liability, instead of their income tax liability. The new provision, found in the Protecting Americans from Tax Hikes (PATH) Act makes the tax credit available for income tax returns filed for 2016. To qualify, “a business must have gross receipts of less than $5 million and could not have had gross receipts prior to 2012.” A business can opt to use this credit for up to $250,000 of eligible research credits against its payroll tax liability by using Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. The form must be attached to its payroll tax return and accompany for 941, Employer’s Quarterly Federal Tax Return.
2. Small Employer Health Care Credit – If you have fewer than 25 full-time equivalent employees making an average of $50,000 a year or less, you may be eligible for the Small Employer Health Care Credit, which is worth up to 50% of the cost you pay for employee health coverage. Nonprofit employers can receive up to 35% of the cost paid. You must also offer your full-time employees coverage through the SHOP Marketplace. Note that you do not have to offer dependents of employees or employees working less than 30 hours per week health coverage in order qualify for the credit. The credit is highest for businesses with fewer than 10 employees who are paid an average of $25,000 or less.
3. Disabled Access Tax Credit – Available to small businesses that pay the cost of access for disabled employees and customers can receive a tax credit of 50% of expenses over $250 but not greater than $10,250 (not greater than $5,000 per year). For this tax credit’s purpose, a small business is considered one with gross receipts not exceeding $1 million in the preceding tax year and no more than 30 full time employees (FTEs). Eligible expenses can include:
a. Removing barriers to access
b. Providing interpreters
c. Methods to provide access to hearing impaired individuals
d. Readers or devices for visually impaired individuals
e. Any equipment or devices for individuals mentioned above.
4. Start a retirement plan – If you are a small business owner with under 100 employees and haven’t already started a retirement plan for you and your employees, there’s no time like the present to put one in place. The credit was designed to offset some of the initial costs for administering the plan and educating employees about its purpose and use. The plan must be a qualified retirement plan such as a simplified employee pension (SEP), Savings Incentive Match Plan for Employees (SIMPLE) or Keogh plan in order to claim 50% of the start-up costs up to $500 per year for three years. There are countless rules and regulations that encompass retirement plans, so work with an administrator or financial advisor to ensure that you meet your required obligations.
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Please be advised that, based on current IRS rules and standards, any advice contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty that the IRS may assess related to this matter. Any information contained in this article, whether viewed or subsequently printed, cannot be relied upon as qualified tax and accounting advice. Any information contained in this article does not fall under the guidelines of IRS Circular 230.