New Bill Proposes Tax Credit And What This Means For Small Businesses
Tax credits can help a business to cut costs and save money. This money can be reinvested into the business so that it can grow faster. People do not take advantage of these credits most of the time because they are not aware of them. A tax credit can be considered to be a tax deduction that saves you even more money. A deduction is cut on the taxable income and it is calculated according to your tax bracket. However, the total tax will only be reduced by a percentage.
Tax Credits on the other hand are dollar for dollar. This means that a dollar is deducted for every dollar of credit. Tax deductions start to make more sense when the value of your taxable income goes up. This is because the percentage increases as you move up the ladder.
Tax credits work better for people in lower brackets because it deducts the tax by a big chunk. The size and type of business that you run will influence the tax credit that your business will receive.
Below are a handful of tax credits you can take advantage of to lower your taxes.
6 Tax Credit To Lower Your Taxes
Healthcare Tax Credit
A small business will qualify for this tax credit if:
- It employs less than 25 full-time employees.
- The employees are paid not more than $50,000 annually on average.
- It pays less than half of the premium costs of the employees.
- Healthcare coverage is provided through the SHOP Marketplace.
The size of the small business matters a lot in this category. Smaller companies receive bigger credits than larger ones. It is highest when the business has less than ten employees with an average salary of $25,000.
Alternative Motor Vehicle Credit
The government allows one to receive a credit of up to eight thousand dollars if they buy a vehicle that uses alternative fuels. This does not cover electric vehicles or hybrid vehicles because their fuel sources are considered to be conventional. The alternative refers to a different mode of energy altogether.
The Honda FCX Clarity is the only vehicle that the IRS considers eligible at the moment. This is because the car uses hydrogen fuel cells to run. You will be putting $8,000 into the company’s account if the next company vehicle is the FCX Clarity.
Child Care Credit
This credit is available to small businesses that pay for the child-care expenses for the employees. The credit is calculated as a quarter of the total expenses each year. It has an upper limit of $150,000. This is still a huge number when you consider a small business.
It is important to note that the Employer-Provide Child Care Tax Credit is different from the Child and Dependent Tax Care Credit. The latter can only be claimed on an individual’s tax return.
The employee will be able to save the money that they would have paid when an employer pays for the child-care services. The $3,000 limitation per child is not applicable when calculating the credit. This means that it can go as high as possible without reaching the upper limit set for the whole organization. The tax credit applies to all employees of the company if the small business is incorporated.
Research Expenses Credit
This tax credit was set to encourage more businesses to conduct research and development. This credit can lead to a lot of savings, but it can be very complex to calculate. Some of the activities that fall within this category include: