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With tax season winding down, it’s still not too late to avail yourself of some clutch credits that could save you tens of thousands. Here are eight:
1. Employee Retention Tax Credit
Eligible employers can claim up to $26,000 per worker for each employee they retained during 2020 and 2021. The program allows employers to claim up to $5,000 per employee they kept on during 2020. For 2021, employers may claim up to $7,000 per quarter for each worker they kept on, though this only applies for the first three quarters of 2021.
Since this tax credit is retroactive, you can still apply to claim it until 2024 for your 2020 returns, or 2025 for your 2021 returns. The ERTC is a refundable tax credit, which means you can still receive a tax refund even if you don’t owe any taxes.
2. Employer-Provided Child Care Facilities and Services Credit
Employers can receive a credit of up to 25 percent of provided child care expenditures, which could include building out or expanding property for child care purposes, or working with licensed child care programs to extend such services to their workers. The maximum refundable credit available is $150,000 per year.
3. Green Tax Credits for EVs
If you bought a new plug-in or fuel cell electric vehicle for your own use, you may be eligible for a credit of up to $7,500. Qualifying vehicles, which need to be purchased from major manufacturers, must weigh less than 14,000 pounds and have been assembled in North America.
There are price limits to keep in mind, and there are a variety of vehicles that are eligible for the credit. Vehicles such as zero-emission vans, pickup trucks, or SUVs that cost up to $80,000 are eligible, as are battery electric vehicles that retail for up to $55,000. This credit is non-refundable, so it only counts against your tax liability.
4. Paid Sick Leave and Family Leave Credit
Employers can receive refundable credits for offering up to 12 weeks of paid family leave during the pandemic, which is capped at $200 per day for each employee and can result in a total credit of up to $12,000. The credit is meant to offset the cost of employees taking leave. Employers that paid out qualifying sick leave wages are eligible as well.
5. Research and Development Tax Credit
Thanks to the Inflation Reduction Act, a $437 billion law passed last year, the federal payroll tax credit doubled to $500,000, from $250,000 as of 2023. The expansion of the non-refundable credit is meant to spur innovation and research. To qualify, companies must have $5 million or less in revenue, and have generated no more than five years of gross receipts. The credit is only offered in 38 states.
6. Retirement Plans Startup Costs Tax Credit
Employers offering retirement plans like 401(k)s can nab the non-refundable tax credit, which is capped at $5,000, for up to three years. Companies can seek out the credit to cover costs of setting up a plan, plus any costs associated with educating workers about offered retirement plans.
Eligible businesses must have fewer than 100 employees who earned at least $5,000 in the past year. Businesses must also cover a minimum of one “non-highly compensated employee,” or someone who makes less than an alloted dollar threshold laid out by the IRS, with their retirement plan.
7. Small-Business Health Care Tax Credit
The refundable credit is available to companies with fewer than 25 full-time employees making less than $55,000, on average. Employers must pay at least half the costs of offering a qualified health plan via the Small Business Health Options Program (SHOP) marketplace, a health insurance exchange authorized by the Affordable Care Act. The credit is meant to encourage employers to offer health insurance for full-time staff.
8. Work Opportunity Tax Credit
This non-refundable credit incentivizes employers to hire employees from underserved populations, such as veterans, formerly incarcerated individuals, the long-term unemployed, and so on. “The size of the credit depends on the category the employee falls into, and how many hours they work for the company,” says Pianoforte.
An employer can get a credit of up to 40 percent of the first $6,000 of the employee’s first-year wages if they hire from those certain groups, with a maximum credit totaling $2,400. And to make next year’s tax season smoother, it’s never too early to get organized.
“Small businesses should have every income and expense transaction recorded and dated, whether or not they think it’s important,” says Richard Pianoforte, the managing director of tax at the New York-based wealth management firm Fiduciary Trust International. “Every small-business owner should keep good records, including invoices, bank statements, receipts, and sales slips.”
Source: Act Fast: 8 Tax Credits That Could Save Entrepreneurs Tens of Thousands | Inc.com
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