7 Tax Credits for Business Owners


As tax season approaches, it’s no surprise that no entrepreneur looks forward to it. But, there is a bit of hope: many tax credits for business owners are available if you know what to look for. While Viking Mergers & Acquisitions cannot give tax advice, we can connect you with an excellent tax advisor if you need assistance filing your 2023 taxes. Business owners leave thousands of dollars on the table through unclaimed tax credits every year, so pay close attention. There is still time to take advantage of these tax credits on your 2023 filing.

Understanding Tax Credits vs. Tax Deductions

First, it’s crucial to distinguish between tax credits and tax deductions. Tax credits, like the ones we’ll discuss, directly reduce your tax bill. On the other hand, tax deductions lower your taxable income. Both play a vital role in minimizing your tax liabilities, so be sure to check out our separate list of tax deductions for business owners.

Meanwhile, don’t miss these tax credits for business owners when filing your 2023 corporate taxes.


7 Often-Overlooked Tax Credits for Business Owners

1. Research and Development (R&D) Credits

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 for business owners, primarily due to the vague description of what qualifies as “R&D.” 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 creating a new product – this is incorrect. You can claim credit if your business is improving an existing product or process. Your research must be technological in nature and use a process of experimentation that eliminates uncertainty to be eligible for this credit.

R&D credits became available in 1981 to incentivize businesses to hire research employees and advance technologically. Since then, the credit has expired and been renewed several times. However, the Protecting Americans from Tax Hikes (PATH) Act of 2015 permanently extended the R&D credits available to small businesses under Section 41 of the IRS code.

Qualified small businesses can use the R&D tax credit to offset up to $500,000 against payroll tax liability. This credit is an increase from the previous $250,000 limit as part of the Inflation Reduction Act signed in August 2022​​.

The IRS defines a qualified small business as a corporation, partnership, or S corporation with less than $5 million in gross receipts in the current tax filing and/or no gross receipts for the five-tax year window that includes the tax filing year​​.

It’s important to note that the rules surrounding the R&D tax credit can be complex, and businesses should consult with a tax specialist to ensure full compliance and maximum benefits.


2. Investment Tax Credits

Percentage: 6%-30% of qualified costs.

Eligibility: Commercial, Industrial, Utility, & Agricultural sectors. Energy-saving equipment must meet specific criteria.

To encourage businesses to shift toward greener practices, the government offers several renewable energy tax credits, also known as investment tax credits. These include:

  • Reforestation Credit: allows forest owners to get a 10% tax credit for all replanting costs.
  • Rehabilitation Tax Credit: offers 20% of the qualified costs to restore a historic building or structure for business use.
  • Solar Energy Investment Credit: provides up to 30% tax credit to businesses that install solar photovoltaic systems within a given tax year. The project must also meet labor requirements to get the full credit.

Businesses in the commercial, industrial, utility, and agricultural fields are eligible for these and other energy-related tax credits if they use solar energy, fuel cells, small wind turbines, geothermal systems, or microturbines as energy sources. The policy framework incentivizes cleaner energy practices and boosts domestic clean energy manufacturing.

The impact of these credits is evident in the U.S. energy landscape. For instance, since the introduction of energy-related ITCs, renewable energy from sources like solar and wind has grown substantially, significantly contributing to the national energy mix.


3. Work Opportunity Tax Credits

Percentage: 25%-50% of qualified wages.

Eligibility: Any target group employee who has worked at least 120 hours.

Employers collect up to $1 billion annually under Work Opportunity Tax Credits. The Work Opportunity Tax Credit is available to employers who hire and retain employees from target groups who often face significant barriers to fair employment. Employers may qualify for WOTC by hiring employees from eligible target groups, including veterans, TANF recipients, SNAP recipients, Designated Community Residents, Vocational Rehabilitation referrals, ex-felons, Supplemental Security Income recipients, and Summer Youth employees.

The number of employees you can hire to qualify for this credit is unlimited. However, former employees and family members or dependents of the employer will not be eligible for this tax credit. 

Employers are eligible for a 40% credit in the first year of employment and a 50% in the second. To qualify for the full credit, the employee must have worked at least 400 hours, but you can still receive a 25% credit if the employee worked as little as 125 hours. WOTC is available until December 31, 2025​​.


4. Retirement Plan Tax Credits + Employer Contribution Cost Credit (New in 2023)

Percentage: 50%-100% of startup expenses, up to $5,000. 

Eligibility: Fewer than 100 employees, all paid more than $5,000 annually but not considered highly compensated employees.

According to a U.S. Bureau of Labor Statistics study, only 53% of businesses with fewer than 100 employees sponsor an employee retirement plan. Small companies hesitate 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 — the Credit for Small Employer Pension Plan Startup Costs — to help business owners recoup some of the startup expenses. This federal tax credit covers SEP IRAs, Simple IRAs, and specific qualified plans, such as 401(k), profit-sharing, defined-benefit plans, and money-purchase pension plans. 

Additionally, the provisions of the SECURE 2.0 Act of 2022 are now applicable, expanding the existing tax credit for business owners.
New in 2023: For businesses with 50 or fewer employees, the credit now covers 100% of all the ordinary and necessary eligible costs companies incur to set up and maintain a qualified retirement plan for each of the first three years of the plan. The credit covers a maximum of $250 per non-highly compensated employee (NHCE) eligible to participate in the plan, but not more than $5,000 or less than $500 in any year.

For businesses with 51-100 employees, the credit remains unchanged by SECURE 2.0. It covers 50% of startup and administration costs, up to $250 times the number of NHCE eligible for the retirement plan, but not more than $5,000 or less than $500.
Also new in 2023 is an additional credit available for the cost of employer contributions to the retirement plan. The maximum credit amount varies according to the number of employees and how long the plan has been in place.
For businesses with up to 50 employees, the credit is:

  • up to 100% of contributions in the first two years,
  • up to 75% in the third year,
  • up to 50% in the fourth year,
  • up to 25% in the fifth year.

For businesses with 51-100 employees, the above amounts are reduced by 2% per employee beyond the 50th. For example, if the company has 54 employees in the first year, their credit would be up to 92% of employer contributions.

This credit also has a maximum of $1,000 per eligible participant with wages of $100,000 or less.

​​Remember, the startup credit and the employer contribution credit will reduce the deduction an employer can take for startup costs and making employer contributions to the plan. (No double dipping.)


5. Disabled Access Tax Credits

Percentage: 50% of qualified costs up to $10,250.

Eligibility: Available to small businesses with fewer than 30 full-time employees and less than $1M in revenue.

In 1990, the Americans with Disabilities Act (ADA) was passed by Congress, requiring employers to provide accommodation and facility access to those with disabilities. Businesses pay to install accommodations or renovate to provide better access for employees and patrons, so the IRS offers the Disabled Access Tax Credit to business owners with fewer than 30 employees and under $1M in gross sales. 

Companies may claim the credit every year that the business makes an eligible access expenditure, which includes any 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
  • Providing materials or a translator for the deaf and hard of hearing


6. Employer Credit for Paid Family and Medical Leave

Percentage: Between 12.5% and 25% of paid wages to an eligible employee on family or medical leave.
Eligibility: Voluntarily (not mandated by law) paid at least 50% of an eligible employee’s wages while on qualifying family or medical leave.

The Family and Medical Leave Act (FMLA) was passed in 1993 to provide job security to employees who needed extended time away from work to recover from medical treatment or emergency, after the birth or adoption of a new child, to care for an ill family member, or qualifying reason. FMLA does not require employers to pay employees on qualified leave, which can jeopardize many employees’ financial health. 

The IRS offers the Employer Credit for Paid Family and Medical Leave to businesses that voluntarily cover at least half of a qualifying employee’s wages while on leave to further protect individuals and families from hard times. To qualify, an employee must have been employed for at least a year with pay not exceeding the threshold set by the IRS. That threshold is adjusted annually, and for 2023, an eligible employee’s 2022 compensation must have been less than $81,000.

Any business that pays 50% of its employees’ wages while on FMLA leave can get a tax credit of 12.5% of those wages. The credit increases incrementally for each additional percentage point that the amount paid increases, with a maximum credit of 25%. There are other qualifications, so be sure to consult your tax professional.


7. Credit for Employer-Provided Childcare Facilities and Services

Percentage: 25% of costs to build and maintain childcare facilities and/or 10% of costs to pay for childcare resources and referrals.

Eligibility: Pay to build, remodel, expand, or operate a childcare facility for employees or pay for childcare through a qualified childcare facility.

Finding reliable and affordable childcare is challenging for many working parents, but the IRS provides tax credits to employers who make that easier. Businesses that spend money on one or more of the following may qualify for the Employer-Provided Childcare Facilities and Services Tax Credit:

  • Building, remodeling, or expanding a childcare facility for employee use.
  • Operating an existing childcare facility for employee use, such as paying childcare providers’ salaries, supply expenses, and utilities.
  • Contracting a third-party childcare facility or provider to offer childcare services to employees.

All childcare services must meet state and local licensing requirements as qualified childcare facilities.

The credit is good for 25% of all costs related to building or operating a childcare facility, while an additional 10% is for any costs to provide childcare resources or referrals to outside childcare providers. The credit maxes out at $150,000 per tax year.

These seven tax credits for business owners can save your business some serious cash if you are eligible and aware of the documentation required to claim them. If you have not filed your 2023 corporate taxes yet, there is still time to take advantage of these credits, deductions, and more. As a reminder, Viking Mergers & Acquisitions cannot give tax advice, but we can connect you with an excellent tax advisor if you need assistance filing your 2023 taxes.