Discussing strategy and sorting out tax credit options—teamwork makes the paperwork easier
Let’s face it, running a small business in the U.S. isn’t cheap. Between payroll, supplies, rent, and that never-ending pile of paperwork, the expenses pile up fast. But here’s something that could lighten the load: tax credits.
Unlike deductions, which just reduce how much of your income gets taxed, tax credits cut directly into what you owe Uncle Sam. Think of it like a coupon for your tax bill, dollar for dollar. And if you’re not using them, you might be leaving serious money on the table.
So, what tax credits are actually worth your attention? Let’s dig into the top 5 small business tax credits available right now and how they can help you keep more of your hard-earned money.
1. What is the Research and Development (R&D) Tax Credit, and How Do Small Businesses Qualify?
The R&D tax credit isn’t just for tech giants or lab-coated scientists. It’s available to any U.S. business that invests in innovation, whether you’re developing new products, improving existing ones, or tinkering with new software.
Here’s the kicker: You don’t even have to be profitable to benefit. Startups can use this credit to offset payroll taxes up to $250,000 per year for up to five years.
How do you qualify?
Ask yourself:
- Are you building or improving a product or process?
- Do you have technical uncertainty (aka, trial-and-error in development)?
- Are your activities based on science, tech, or engineering?
If that sounds like your business, there’s a good chance you qualify.
What expenses count?
Wages for your developers, engineers, or designers. Supplies used during development. Cloud computing costs. Contract research. If it ties into R&D work, it might count.
How to claim it:
Fill out Form 6765 with your tax return. If you’re applying the credit to payroll taxes, you’ll also need Form 8974.
2. How Does the Work Opportunity Tax Credit (WOTC) Help Small Businesses?
If you’re hiring, the Work Opportunity Tax Credit can give you a financial boost while creating jobs for people who often face barriers to employment.
Who’s eligible?
You can claim this credit if you hire someone from a targeted group, like:
- Veterans
- Long-term unemployed individuals
- People receiving SNAP or other government aid
- Those with prior felony convictions
There are over a dozen categories, so it’s worth checking the full list from the IRS.
How much can you get?
Credits can range up to $2,400–$9,600 per eligible employee, depending on the employee category and hours worked.
How to claim it:
You must submit IRS Form 8850 to your state workforce agency within 28 days of the employee’s start date. If you miss that deadline? No credit.
3. What Is the Disabled Access Credit and Who Can Use It?
Accessibility isn’t just the right thing to do; it can also save you money. The Disabled Access Credit helps small businesses cover the cost of making services or locations more accessible to people with disabilities.
What expenses qualify?
Think:
- Installing ramps or accessible bathrooms
- Adding braille signage
- Offering assistive technology like voice-activated terminals
Basically, anything that helps you meet ADA compliance and improves access.
Do you qualify?
Your business must:
- Have a million or less in gross receipts, or
- Employ 30 or fewer full-time workers
The credit covers 50% of eligible expenses up to $10,250 per year. That’s a max of $5,000 back in your pocket.
How to claim it:
Use IRS Form 8826 when you file.
4. What Is the Small Business Health Care Tax Credit?
Offering health insurance can be pricey, but if you’re a small employer, the Small Business Health Care Tax Credit might help you recover some of that cost.
What’s the deal?
This credit is meant for businesses that:
- Have fewer than 25 full-time equivalent employees
- Pay average annual wages under $56,000 (adjusted annually)
- Pay at least 50% of premiums for employees
- Use a plan from the Small Business Health Options Program (SHOP)
How much is the credit?
Up to 50% of premiums are paid for for-profit employers, and 35% for nonprofits. But it only applies for two consecutive years, so plan wisely.
How to claim it:
Use Form 8941 with your return. It’s worth noting that the credit only covers premiums, not other healthcare costs.
5. What Is the Employee Retention Credit (ERC) and Can You Still Claim It?
The Employee Retention Credit was introduced during the COVID-19 pandemic to help businesses keep staff on the payroll, even if operations were disrupted. While the original eligibility period ended in 2021, some businesses can still claim it retroactively.
Who qualifies?
You could be eligible if:
- Your business operations were fully or partially suspended due to government orders, or
- You had a significant drop in revenue during 2020 or 2021
The rules are pretty complex, especially when factoring in Paycheck Protection Program (PPP) loans. But for those who qualify, the credit can be worth up to $26,000 per employee.
How to claim it:
You’ll need to file an amended payroll tax return (Form 941-X) for the relevant quarter.
The deadline to claim is April 15, 2025, for 2021 credits, so time is ticking.
Other Tax Credits You Might Not Know About
While the five credits above are the biggest standouts, there are a few others you may want to explore:
- Credit for Employer-Provided Paid Family and Medical Leave
- New Markets Credit (for businesses in underserved communities)
- Energy-efficient commercial building credits
They’re more niche but could apply depending on your business type and location.
Tips for Claiming Small Business Tax Credits Without the Headache
Tax credits are great, until you’re knee-deep in IRS forms. Here are a few tips to make the process smoother:
- Keep great records. You’ll need proof of qualified expenses, wages, employee eligibility, etc.
- Use a tax pro. Tax credits can get technical. A qualified CPA or enrolled agent can help you claim everything you’re eligible for.
- File on time. Some credits have strict deadlines; miss one, and you could miss out entirely.
- Stay updated. Tax laws change often. Subscribe to IRS alerts or follow trusted tax professionals on LinkedIn or Twitter to keep up.
Final Thoughts: Are You Missing Out on Tax Credits?
It’s easy to overlook tax credits, especially when you’re focused on running a business. But ignoring them could mean leaving thousands of dollars on the table.
Whether you’re hiring new employees, innovating products, or making your shop more accessible, there may be a credit that helps offset those costs.
So take a moment. Think about what your business is already doing. Then ask yourself: Am I claiming all the credits I’m entitled to?
If the answer is “I don’t know,” it’s time to find out.
Frequently Asked Questions (FAQ)
What is the difference between a tax credit and a deduction?
A tax credit directly reduces your tax bill dollar for dollar, while a deduction reduces the amount of income that gets taxed.
Can I claim more than one small business tax credit?
Yes! You can claim multiple tax credits as long as you meet the eligibility criteria for each. Just be careful not to double-dip on the same expenses.
Do I need to make a profit to claim tax credits?
Not always. Some credits, like the R&D payroll credit, can be claimed even if you’re operating at a loss.
What is the best way to find out which tax credits I qualify for?
Consult a tax professional or use IRS resources. You can also check the official IRS Small Business and Self-Employed Tax Center for updated info.
Are tax credits available at the state level, too?
Yes, many states offer their own tax credit programs. Check your state’s department of revenue website for local opportunities.
Take the Next Step
If you’re not sure where to begin, start small. Look at just one credit that might apply to your business and dig deeper. Or better yet, chat with a tax professional who specializes in small businesses; they might uncover credits you didn’t even know existed.
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