Posted in Business basics | by: Scott Clugston

5 Tax Credits Every Savvy Business Owner Should Know About

If you had a few hundred dollars in your pocket, what would you do with it? Maybe you’re so busy stressing about Tax Day that the question seems a bit irrelevant. However, if you’re a business owner hoping to earn some extra (tax) credit, that tantalizing refund could be in your future sooner than you think.

At the end of the day, saving on your taxes is all about knowing where to look. Those of you with an accountant may feel like it’s only their responsibility to sniff out savings. But really, identifying tax credits should be every business owner’s job. And lucky for you, the IRS has provided plenty of opportunities you can take advantage of. In this post, I’ve identified five tax credits that will give you a head start on your search.

1. Check out disability tax credits

If there’s someone on your team who has a disability, and that investment has resulted in additional spend, this one’s for you. Not only are you employing someone who may be overlooked by others, it’s also providing a monumental benefit to your business.

According to the IRS, eligible expenses include:

  • Removing barriers that help your business become more accessible or usable by someone who is disabled
  • Providing interpreters or other methods that make audio materials available to those who are hearing-impaired
  • Buying readers, taped texts, and other materials that help people who have visual impairments
  • Modifying or buying equipment for those with disabilities

Have you spent money on any of the above? If so, awesome — you may qualify for a maximum credit of $5,000 on $10,000 of expenses.

2. Pay mandatory bills before year’s end

Eyeing a new laptop? It might be time to take the plunge. Many business owners understand that basic expenses are great to invest in before the end of the year. However, technology and office equipment isn’t the only way to lower your taxable income. Consider paying off large bills that you’ll have to end up paying anyway. If you pay your state taxes before December 31st, this could also lower your income and be an expense to write off.

These type of expenses will have to get paid eventually, so if you’re looking for a way to shrink your taxable income, this is a great way to get it done.




3. Offer employer-sponsored childcare

Small businesses can’t always offer the same benefits as large corporations do… or can they? Strategically offering benefits like childcare can be a great bonus for your employees while also offsetting your yearly taxes.

This credit is for businesses that directly pay for their employees’ childcare expenses. As a business owner, you can claim 25 percent of this expense — up to $150,000 per year. For incorporated businesses, this can be even more attractive for the owners. If — as an employee of your corporation — you invest in childcare, you could be eligible for the same benefits that you offer to the rest of your team. It essentially allows you to save 25 percent on your own childcare costs.

4. Maximize your retirement contributions

While owners of incorporated small businesses can get breaks on childcare, self-employed folks can benefit from retirement contributions. You see, when you’re an employee with a traditional 401(k), you get automatic withdrawals from each paycheck. However, once you’re self-employed, it’s easy to push these contributions down on your priority list. If you fall into that trap, you’re not only missing out on padding your retirement fund, but also on minimizing your taxable income.

Contributing to SEP-IRAs, SIMPLE IRAs and solo 401(k)s can help you rack up tax-deferred investment gains while simultaneously reducing your tax bill. By adding the maximum amount to each of these accounts every year, you could save thousands of dollars.

Keep in mind that maximums adjust annually and vary by plan type. Make sure to check with the IRS and/or your accountant for your updated contribution limits.

5. Pursue research & development

Keeping research local helps the economy. And that’s a win-win for everyone, which is why we have a tax credit designed specifically for this purpose.

Calculating this credit can get pretty complex, but it could also result in substantial tax savings at the end of the day. The definition is broad, so definitely consult a professional before writing it off on this year’s taxes.

Generally, it encompasses activities such as:

  • Developing new or improved products, processes, or formulas
  • Developing prototypes or models
  • Developing or applying for patents
  • Certification testing
  • Developing new technology
  • Environmental testing
  • Developing or improving software technologies
  • Building or improving manufacturing facilities
  • Streamlining internal processes

Not only does this type of research potentially strengthen the core offerings of your business, it can also help move your entire industry forward.

Have you identified all possible deductions?

When you own your own business, it’s important to spend wisely and save as much as possible. Just imagine — even if you only get a few hundred dollars back — that’s money you can eventually reinvest into the growth of your company. So start familiarizing yourself with some of the great opportunities above, and let the savings scavenger hunt begin.

About Scott Clugston

Scott Clugston is the Director of Sales at FreshBooks, the cloud accounting solution helping five million users invoice their clients with ease.