When you’re getting ready to fill out and file your annual tax return, you should be aware of the many things that you can do to reduce your tax burden. Likely the easiest way to reduce the money you owe on your annual return is to obtain tax credits. These credits are specifically designed to help taxpayers increase their tax refund or lessen the taxes that are due. While there are many notable tax credits that you may be able to qualify for, the following takes a more in-depth look at the best tax credits that are currently available to you and your business.
The Best Tax Credits Available for 2022
Each of these credits can save your business big money on taxes this year. Here’s how you can take advantage of each of these potent tax credits.
Employee Retention Credit (ERC Tax Credit)
The Employee Retention Credit was created in response to the COVID-19 pandemic. The purpose of this tax credit is to essentially give businesses a monetary reason to keep employees on the payroll. As much as $10,000 of wages can be counted for each employee when calculating what the tax credit should amount to.
In order for a business to claim this credit, all eligible employers must report their total qualified wages as well as their health insurance costs on the quarterly employment tax returns that they submit. These tax returns are available via Form 941.
The Research & Development Tax Credit (R&D Tax Credit)
The R&D Tax Credit facilitates domestic innovation by offsetting the cost of researching and developing new products, technology, or other improvements. Better yet, various entity types including corporations, individuals, and partnerships can all access this credit.
Be careful with your calculations because the R&D credit is tricky. You must account for increases in research expenditures and activities within the business, and any miscalculations could cost you dearly.
It would take an entire book to explain the nuances behind the R&D tax credit, so we won’t get too deep in the weeds. However, suffice to say that you shouldn’t claim this credit lightly. You should consult with a professional tax advisor if you’re interested in claiming it.
Our Tax Hack team specializes in R&D Tax Credits for businesses of all sizes. If you have questions about the R&D Tax Credit and you’d like to speak to one of our tax pros, set up a complimentary one-on-one strategy session here.
The activities that qualify for the R&D Tax Credit include:
- Developing new or fully improved products, formulas, or processes
- Applying for or developing patents
- Developing a customer relationship management system and/or improving the process of collecting data
- Developing new and advanced technologies
- Increasing operation efficiencies and automating activities
- Developing, designing, and testing new applications and/or software
Credit for Small Employer Health Insurance Premiums
If you’re a small business owner who fully or partially subsidizes your employee healthcare premiums, you could receive a ax credit for Small Employer Healthcare Premiums. Your credit could total as much as 50% of your total premiums paid for the year.
You can qualify for this credit under the following conditions:
- Have less than 25 full-time employees for the previous tax year
- Paid the average amount in annual wages of lower than $56,000
- Paid employee health insurance coverage premiums through the SHOP health insurance marketplace
Credit for Paid Family and Medical Leave
Under Section 45S, the IRS offers a tax credit to employers who give paid medical and family leave to their employees. Congress initially authorized the credit in 2017 to encourage small business owners to offer paid leave to employees via the Paid Family and Medical Leave Act.
This credit reimburses you for up to 12 weeks of paid leave to specific employees. These employees will also receive access to full health benefits each year.
Any employers who are eligible for the tax credit can claim it on their annual tax returns, and your total credit is based on a percentage of your business’s total expense for paid family and medical leave.
Alternative Fuel Credits
Alternative Fuel Credits are available to businesses that produce alternative fuels. However, this credit doesn’t apply to the consumption of alternative fuels. Instead, the credit covers qualifying expenses relating to the production of alcohol-based fuels like ethanol and other alternative fuels like biodiesel.
Alternative Motor Vehicle Credit
The Alternative Motor Vehicle Credit encourages car buyers to purchase vehicles that operate on an alternative fuel source. The credit can be as high as $8,000. Keep in mind, however, that the credit doesn’t apply to electric or hybrid vehicles that use more conventional fuel sources.
At this point, the credit is somewhat limited, but certain vehicles still qualify. You can learn more about the alternative motor vehicle credit here.
Ensure your new vehicle qualifies for the credit before you buy it, or you could find out after it’s too late. The IRS doesn’t currently publish an exhaustive list of eligible vehicles for this tax credit, so you’ll have to do some digging. You will also need to produce a manufacturer’s certification stating that the exact make and model year of your vehicle qualifies for the credit.
Disabled Access Credit
The Disabled Access Credit encourages businesses to make their offices and facilities accessible to disabled individuals.
For example, could make your facilities more accessible by enhancing display units, including braille text on signs, upgrading restrooms to better accommodate disabled use, and installing ramps to allow wheelchair access.
You can only qualify for this tax credit if with annual revenues of $1 million or lower. Furthermore, your business cannot have more than 30 full-time employees.
Credit for Employer-Provided Childcare Facilities and Services
This tax credit is available for businesses that pay childcare expenses for some or all of their employees. You could also qualify for this credit if you help employees with childcare services.
The amount of credit that you receive equates to 25% of all expenses as well as 10% of any childcare referral and resource expenditures. However, the credit has a maximum of $150,000 per year.
Small Employer Pension Plan Start-Up Costs Credit
The pension plan start-up costs credit is available to small businesses that have just recently opened a pension fund, and it offsets some of the associated costs.
You can claim as much as 50% or $500 of start-up costs for the credit, and it’s available for the first three years of your pension plan.
You must meet the following criteria to qualify for the Small Employer Pension Plan Start-Up Costs Credit:
- Have less than 100 employees with $5,000 or more in compensation
- Have not had a 401(k) or qualifying retirement plan for the previous three years
Work Opportunity Credit
The Work Opportunity Credit is provided to all businesses that hire individuals facing notable barriers to employment. For example, some categories that cause an employee to be eligible include:
- Youth employees living in “Empowerment Zones”
- Long-term recipients of family assistance
- Unemployed and disabled veterans
You use the total wages paid to these employees as the basis for calculating your Work Opportunity Credit, which can total as much as $9,000 over a two-year period.
New Markets Credit
This tax credit provides support to businesses that place investments in certain community development entities. Usually, the entities are low-income communities. Eligible projects for the New Markets Credit involve renovating or constructing real estate in low-income areas.
The New Markets Credit covers qualifying pieces of real estate development such as:
- Community centers and educational facilities
- Industrial facilities that create jobs
- Healthcare facilities
- Facilities primarily serving minorities, women, or other under-served communities.
Keep in mind, you have to situate the project in a location that has at least a 20% poverty rate or a median family income that’s lower than 80% of the total area median income.
How to Maximize Your Tax Credits
Tax Hack Accounting can make sure your business gets the tax credits it deserves. Our tax credit specialists will ensure you’re taking full advantage of every tax credit available to you so you can keep more of what’s yours. We’ve helped hundreds of businesses just like yours maximize their tax savings and we can do the same for you. Schedule a one-on-one tax credit strategy session with one of our tax pros now to see how much you could save.