Tax Credits & Incentives for Small Businesses

Every year Modesto small business owners like you miss out on claiming tax credits and incentives that could help you lower your tax bill.

Running a business isn’t easy or cheap. And your IRS burden can carve out a good chunk of your profits. But there are ways to reduce what you owe and put some cash back in your pocket. It just means knowing what tax credits and incentives are available and claiming them for your business.

Research and Development (R&D) Tax Credits

According to the U.S. Government Accountability Office, the Federal R&D credit saved businesses an estimated $13.4 billion in federal taxes in 2021. That could mean potentially big savings for you if your company is developing new products, processes, or software.

There are two methods for calculating this credit:

Traditional Credit:

20% of the current year’s qualified research expenditures over a base amount, which is linked to historical spending.

Alternative Simplified Credit (ASC):

14% of qualified research expenses over a base amount calculated as a percentage of the revenues for the prior three years.

Jobs Tax Credits

Hiring new employees is an investment in your future. Jobs tax credits incentivize this by offering tax breaks for bringing on new staff. These credits can vary depending on the type of employee you hire and their qualifications.

Some common ones include:

Work Opportunity Tax Credit (WOTC):

Employers can receive a credit ranging from $1,200 to $9,600 per eligible employee, depending on the employee’s target group (e.g., veterans, SNAP recipients).

Empowerment Zone Employment Credit:

Businesses can claim up to $3,000 per eligible employee if they operate in designated empowerment zones.

Federal Tax Credits

Other notable federal tax credits include:

Energy Investment Tax Credit (ITC):

Offers up to 30% credit for businesses that install solar energy systems, fuel cells, small wind turbines, or invest in geothermal heat pumps.

New Markets Tax Credit:

Encourages investments in low-income communities, offering a credit of about 39% over seven years for qualified equity investments.

Determining eligibility is the first step. Let’s sit down for a consultation to see which tax credits you can already claim and if any of them are ones you can claim in your business this year.

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