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Business Credits That Cut Your Tax Bill

Tax credits reduce the amount of tax you owe, whereas deductions lower your taxable income. There are several highly valued business tax credits you might not know about that could cut your tax bill.

WORK OPPORTUNITY

By hiring employees who have consistently faced significant barriers to employment, your company may be eligible for the Work Opportunity Tax Credit. Generally, the credit equals 40% of the first $6,000 of wages paid to the qualifying employee, with a maximum credit of $2,400 per worker. You and your employee will need to complete a form to notify the IRS that you plan to claim this credit.

EMPOWERMENT ZONES

If your business operates in a designated empowerment zone (an economically depressed area as determined by the IRS), you may be eligible for a tax credit of up to $3,000 per employee. To qualify, the employee must complete most of their work in the empowerment zone for the employer, and their principal residence must also be in the designated zone.

HEALTH INSURANCE

To encourage small companies to provide health insurance to employees, the IRS offers the Small Business Health Care Tax Credit worth up to 50% of the cost you pay for employees’ premiums. There are several requirements for claiming this credit, including having fewer than 25 full-time equivalent employees and paying at least 50% of employees’ premium costs.

EMPLOYEE RETENTION

One of the numerous corporate tax breaks that came out of the COVID-19 legislation was the Employee Retention Credit. If your business was shut down by government orders or sustained decreased sales, but you continued to pay employees, you could be eligible for up to $21,000 in tax credits per employee for 2021. Although the eligible pay periods expired in September 2021, you can still file amended payroll tax returns to claim any credit you’re entitled to. The calculations for this credit are tedious so consult with your tax professional if you believe you qualify for the Employee Retention Credit.

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Negotiating Post-Covid Benefits

As companies open again, employers may have discovered that a new normal may increase employee satisfaction and productivity. For example, remote work may have worked best for some, while others prefer the socialization of the workplace. Here are some things to consider:

INCREASED FLEXIBILITY

Employees who have worked remotely for more than a year may be hesitant to return to the office full time, instead preferring a flexible or hybrid office schedule. If possible, offer employees the option to work from home a few days a week. This means your employees will be happier and it may allow you to reduce the footprint of your office space, saving your business money.

DON’T SWEAT THE SMALL STUFF

With employees requesting more flexibility, it might mean that perks — like an on-site gym or coffee bar — may not be valued as much by a workforce that doesn’t frequent the office. Some employees may elect to give up these small perks to have a flexible work schedule.

MONITOR PRODUCTIVITY

It might be easy to fall into the trap of requiring more from remote employees because they no longer have to commute. Don’t expect them to substitute their former commute time with more working hours. Demanding hyper-productivity can lead to burnout, frustration and negativity that may cause hard-working employees to quit. Respect normal working hours and avoid meetings or phone calls outside of that time frame.

BRING IT BACK IN

If you determine that you need your employees to return to the office, respect that some of them may have safety concerns.

Also acknowledge that returning to the office, after more than a year of remote work, will be an adjustment. Employees will need to acclimate to the high-stimulus environment of the worksite, with sounds and activity all around them. This can create sensory overload initially, so prepare for employees to ease back into the office. Every company is different and any changes need to work well for yours.