Unexpected Small Business Tax Credits
Naturally at tax time, small businesses look for ways to maximize tax credits and deductions. The federal government provides tax credits as a means of encouraging businesses to behave in ways that benefit the greater good. When that behavior also helps achieve your goals, it makes sense, and can mean substantial savings. Examples of mutually beneficial tax credits could include new-hires, going green and providing disability access and health coverage for employees.
Tax credits, as opposed to tax deductions are incentives issued to businesses for certain activities. They may be issued for purchasing energy efficient vehicles, converting to renewable energy and building with green materials. Tax credits may actually save more tax money than deductions. Go over your unique financial situation with your accountant to check which credits benefit you.
Purchases
Purchases for businesses may qualify for a tax credit, if use of the equipment, vehicle, or facility begins in the year when you claim the tax credit.
Coronavirus Tax Credits
Employee retention credit was developed to motivate businesses to keep employees working in spite of Coronavirus related loss of revenue. There are also tax credits to help employers pay for sick leave and family leave for employees affected by COVID-19. The latter can pay up to 80 hours, or 2 weeks of 100% paid sick leave per employee. There are caps, and restrictions, such as when employee can’t work due to:
- government ordered quarantine,
- health care provider recommended quarantine,
- presence of COVID-19 symptoms and seeking a medical diagnosis.
If the employee is a care giver, they may receive 66.7% of their pay up to 80 hours if eligible due to:
- care of someone in a COVID-19 related quarantine
- care of a child whose school or place of care (daycare etc.) is closed due to COVID-19
- having substantially similar conditions to the two prior situations.
Other Small Business Key Relief Programs
Paycheck Protection Program protected many employees and employers in 2020. New funds were added to the PPP program in 2021.
Main Street Lending Program was created for small and medium-sized businesses. This is used instead of, or in addition to Paycheck Protection Program Loans.
The Economic Injury Disaster Loan Program gives quick cash to businesses as they apply for economic injury disaster assistance.
Employee Retention Credit reduces payroll taxes for employers who agree to keep employees on the payroll.
Pandemic Unemployment Assistance extends unemployment benefits to those not covered by regular unemployment compensation, including self-employed individuals.