Overlooked Tax Credits that Help Business Owners
There’s still time to take advantage of these tax credits on your 2014 filing.
It’s tax season and as small business owners, we know what that means – how can we save some cash without raising red flags with the IRS? Every year, the IRS collects over $2.4 trillion dollars in taxes and in 2013, $312 million of that money came from businesses. At 35%, America has the highest corporate tax rates in all of the world’s economies! While tax season is not something that any business owner looks forward to, there are ways for you to recoup some of that cash. Business owners leave thousands of dollars on the table through unclaimed tax credits every year – don’t miss these overlooked tax credits when filing your 2014 corporate taxes.
Percentage: Up to 20% of qualifying expenses.
Eligibility: All industries; must be conducting research that is technological in nature.
Research and development credits are one of the most overlooked tax credits available to business owners and this is mostly due to the vague description of what qualifies as ‘R&D’. R&D credits became available in 1981 in an effort to incentivize businesses to hire research employees and advance technologically. In 2010 alone, businesses claimed approximately $8.5 billion in tax credits to support R&D. Since then, the credit has expired and been renewed several times.
R&D credits are available to businesses that manufacture, develop, design and research product improvement. Business owners often think they are ineligible for the credit because they are not developing a new product – this is incorrect. As long as your business is improving an existing product or process, you are able to claim the credit. To be eligible for this credit, your research must be technological in nature, and use a process of experimentation that eliminates uncertainty.
Investment Tax Credits
Percentage: 10%-30% of qualified costs.
Eligibility: Commercial, Industrial, Utility, & Agricultural sectors. Energy saving equipment must meet specific criteria.
In an effort to encourage businesses to shift towards greener practices, the government offers several renewable energy tax credits, including the Investment Tax Credit. The U.S. Department of Energy aims for America to derive 14% of its energy from solar and wind sources by 2030 and currently, solar and wind makes up about 1% of our energy. Since the initiation of energy-related tax credits, solar power growth has increased by 1,600% between and 2006 and 2013 and wind power has increased 2,700% between 2000 and 2013.
Investment Tax Credits have been such a success that President Obama has made the credit permanently available to business owners – but with a condition. The IRS will reimburse the holder of any solar project by 30% of the investment, but the project must be in effect by the end of 2016. Any solar projects beginning in 2017, will only be eligible for a 10% credit of the original investment.
Businesses in the commercial, industrial, utility, and agricultural fields are eligible for the credit if they are using solar energy, fuel cells, small wind turbines, geothermal systems, or microturbines as energy sources.
Work Opportunity Tax Credits
Percentage: 20%-45% of qualified wages.
Eligibility: Any target group employee who has worked at least 120 hours.
Every year, employers collect up to $1 billion dollars under Work Opportunity Tax Credit. The Work Opportunity Tax Credit is available to employers who hire and retain employees from specific target groups who often face significant barriers to fair employment. The targeted groups that are eligible for this tax credit includes veterans, TANF recipients, Food Stamp recipients, Designated Community Residents, Vocational Rehabilitation referrals, ex-felons, Supplemental Security Income recipients, and Summer Youth employees.
There is no limit to the amount of employees that can be hired to qualify for this credit. Employers are eligible for a 40% credit the first year of employment and a 50% credit the second year of employment. To be eligible for the full credit, the employee must have worked a minimum of 400 hours, but a 25% credit can still be received if the employee worked as little as 125 hours.
Retirement Plan Tax Credits
Percentage: 50% of the first $1,000 in expenses.
Eligibility: Fewer than 100 employees, who are paid more than $5,000 annually.
According to a study conducted by the U.S. Department of Labor Statistics, only 34% of businesses with fewer than 100 employees sponsor an employee retirement plan. Small businesses are hesitant to offer employee retirement plans due to expensive startup and administration costs. To encourage small businesses to provide retirement options, the IRS offers a Retirement Plan Tax Credit that can help business owners recoup some of the startup expenses. The credit can be claimed within a 3 year period of plan implementation, and is good for 50% of the first $1,000 in expenses, which could get business owners as high as $500 back.
To be eligible for this credit, you must have fewer than 100 employees who are all paid more than $5,000 annually but is not considered a highly-compensated employee. Plans that are covered under this federal tax credit include SEP IRAs, Simple IRAs, and certain qualified plans, such as 401(k), profit-sharing, defined-benefit plans, and money-purchase pension plans.
Disabled Access Tax Credits
Percentage: 50% of qualified costs up to $10,500.
Eligibility: Available to small businesses with fewer than 30 employees and less than $1M in sales.
In 1990, the Americans with Disabilities Act (ADA) was passed by Congress, requiring employers to provide accommodation and facility access to those with disabilities. The renovations required to comply with this act can sometimes be costly, so the IRS offers the Disabled Access Tax Credit to business owners who have fewer than 30 employees and under $1,000,000 in gross sales. The credit may be claimed every year that the business makes an eligible access expenditure.
Eligible access expenditures are modifications or installations made to the building to comply with the ADA and make the building more accessible for people with disabilities. Some examples of eligible access expenditures include: providing tapered text for the visually impaired, removing barriers such as widening bathroom stalls, or providing materials or a translator for the hearing impaired.
These 5 credits can save your business some serious cash if you are eligible and aware of the documentation required to claim these credits. If you have not filed your 2014 corporate taxes yet, there is still time to take advantage of these credits, deductions and more. While Viking Mergers & Acquisitions cannot give tax advice, we can connect you with an excellent tax advisor if you do need assistance in filing your 2014 taxes.