Small Business Tax Credits

Like business deductions, tax credits reduce your final tax bill. However, tax credits go a step further and reduce your final tax bill on a dollar-for-dollar basis. 

For example, suppose you have business income of $100,000 after adjustments. Your business also has a $10,000 tax deduction available. Your company’s final tax bill will be $90,000 multiplied by its tax rate. Assuming a rate of 25%, the company’s tax bill will be .25*$90,000, or $22,500.  

Now, consider what happens if your business has a $10,000 tax credit available instead of deduction. In this case, you first calculate your final tax bill and then reduce it by the amount of the credit. In the above example, this would mean you first multiply your $100,000 income by 25%, and then subtract $10,000. This equals $15,000. The tax credit saved your company an additional $7,500. 

Here is a list of some important small business tax credits:

●      Employer Provided Health Insurance Premiums

●      Credit for Paid Family and Medical Leave

●      Work Opportunity Credit

●      Disabled Access Credit

●      Employer Provided Childcare facilities.

Tax credits may sound complicated but taking advantage of them is well worth your time and effort. For more details on the credits mentioned above, please visit our separate blog post [LINK] for additional discussion.

Start Early

A common trap many small business owners find themselves in is that they started organizing for tax season at the last minute. Starting early helps ensure you have the necessary documents to file, and that no deductions or credits are overlooked.  

Starting early includes getting organized early. A good practice is to set up a weekly or monthly schedule to update records, ensure all transactions are recorded properly, and any possible questions are answered timely. 

Summary

Tax season is stressful enough, so we hope our tax deduction checklist and discussion is helpful when you prepare your small business taxes. For more information on taxes and accounting, be sure to visit the rest of the Silva Tax & Accounting website!