Small Business Advice

Small business tax advice: Getting ready for tax day

Tax Day is right around the corner! Here are some things to discuss with your tax preparer about small business tax credits and some considerations related to COVID-19’s small business assistance.

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With Tax Day being July 15th this year, doing taxes for your business may feel more complicated than ever - especially if you started your business in the past year. There are some new tax credits as a result of COVID-19, and then some other lesser known ones that you might want to run past your tax preparer.

Now, there’s actually a difference between tax credit and tax deduction. Deductions are the expenses of a business like marketing, product costs, etc. Tax credits cut your taxes by full dollar and these credits can be more valuable the smaller your operation.

Please note: This blog post is for informational purposes only and doesn’t constitute official financial, legal, or tax advice. Please consult a professional regarding your unique business needs.

Employee Retention Credit 

One of the COVID-19 related credits is the Employee Retention Credit, aiming to help small businesses keep their staff. 50% of the qualified wages paid to employees between March 12, 2020 and January 1, 2021 are eligible for deduction and it’s possible to get advance payment through the IRS

The Paid Sick Leave Credit and Family Leave Credit

The Paid Sick Leave Credit and Family Leave Credit is another COVID-19 deduction aimed to help businesses if an employee is unable to work (even remotely) due to a medical diagnosis. Employees are entitled to paid sick leave up to 80 hours and the employer can receive the credit for the employee being unable to work. This can also be used for employees who cannot work due to having to provide child care or care for someone with the coronavirus. Employers can be immediately reimbursed; find out more here

Credit for Small Employer Health Insurance Premiums

If you’re providing health insurance coverage for your employees, you can get up to 50% of the premiums you paid for health insurance coverage and up to 35% if you’re tax-exempt. This significant tax credit has some eligibility requirements like employing fewer than 25 employees, purchased coverage through the SHOP Marketplace, and having paid wages under certain amounts, so be sure to check with your tax preparer to see if you qualify

Credit for Paid Family and Medical Leave

While there’s a specific tax credit for coronavirus, there’s also a credit if an employee had to take leave for a health emergency or to have a baby, and the credit is equal to the percentage of wages paid to the employee on leave. If you haven’t written a paid sick leave policy, it’s a good thing to consider because the Family and Medical Leave Act has some requirements for credits, but it’s worth trying to get. 

Alternative Motor Vehicle Credit

If you’re looking to invest in a vehicle for your business, there’s an up to $8000 credit for an alternative fuel source vehicle. Hybrids and electric vehicles don’t technically count, but the IRS recognizes battery operated vehicles with a hydrogen fuel-cell battery. It might be time to upgrade, and alternative fuels are better for the environment and for your wallet. There are a couple other related vehicle credits too for electrical vehicles, so be sure to see if you qualify for any of the vehicle credits with your preparer or on the IRS website.

Disabled Access Credit

This credit is designed to encourage businesses to make their offices, facilities, and storefronts fully accessible to customers and employees with disabilities. This credit can help with the installation of ramps, upgrading bathrooms, and updating storage and display units. If your revenue is under $1 million, you can get up to $10,000 covered. Not only is this a substantial credit, it’s a great idea to have your business be more accessible to customers and employees. 

Rehabilitation, Energy, and Reforestation Investments Credit

If your small business has a reforestation mission or if you’ve upgraded your building to use alternative energy, you can get up to a $10,000 credit

Work Opportunity Credit 

If your mission is to provide employment for people experiencing significant barriers to employment, there’s a credit for that! 

The categories of eligible workers are:

- Reentry populations from prison

- Unemployed veterans, including disabled veterans

- Long-term family assistance recipients

- Summer youth employees living in empowerment zones

The credits are calculated based on wages paid to the employees and can provide up to  $9,000 in savings over two years. This is a great credit if you’re motivated to run a business with a mission to provide community support. 

Empowerment Zone and Renewal Community Employment Credit

Here’s another employment credit for hiring people that live and work in low-income areas. The U.S. Department of Housing and Urban Development has a list of empowerment zones and encourages business owners to operate in those areas to stimulate development.

You can get up to $3000 for each full and part time employee who lives in an empowerment zone. 

New Markets Credit

Small business is a fantastic way to invest in community development. If you’ve been acquiring and renovating real estate in low income areas or supporting CDEs or CDFIs, your good work gets you a credit. 

There’s a list of projects to invest in and if you need to find a CDE or CFDI, there’s a tool here

Tax Cuts and Jobs Act 

This credit for sole proprietors first went into effect in 2018 and allows a broad income deduction of 20%, which is great for sole proprietors s-corporations, and partnerships. Entrepreneurs in any industry may deduct 20% of their taxable income: under $157,500 if they’re single and $315,000  if they’re married. 

These are just some of many possible credits out there available for small businesses. Speak to your preparer about which ones work best for your business.


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