Small business tax credits and deductions you should know

Congress regularly gives tax incentives to small businesses. And now is the time to think about them. This is due to the approaching tax filing deadline for corporate earnings for the calendar year. S Corp is March 15th and C Corp is his April 18th.

Snags: There are at least 24 definitions of small business in tax law (I counted!), so if you’re unsure if your business qualifies, check with a tax professional.

tax credits and tax credits

The end result of tax credits and tax credits is basically the same. You pay less tax.

However, there are some differences between the two:

• tax credit reduce taxable income.
• tax credit Reduce your tax liability or increase your tax refund.

You can use both if you don’t pickle twice. Items acquired as a tax credit cannot be used again as a tax credit.

Most tax credits are part of the IRC § 38 General Business Deduction. Unused credits can be carried forward for 1 and 20 years. Point your browser here for a list of common business tax credit components.

IRC § 179 deduction for depreciable business assets

When you buy office equipment, you usually have to depreciate it over its useful life. IRC § 179 lets you put your money in your pocket by making a full tax credit available instead.

For 2023, you can deduct up to $1.16 million from the cost of eligible assets (machinery, equipment, standardized computer software, and non-residential building improvements) operating in 2023. The remaining costs are amortized using the appropriate depreciation schedule.

This deduction has two limitations:

• investment limit. The amount by which the maximum deduction is phased out is based on gross expenditure. By 2023, this amount will be $2.89 million.
• your taxable income. The maximum deductible amount cannot exceed your taxable income. Deductions in excess of income can be carried forward for up to 20 years.

IRC § 41 Refundable Research Credits

IRC § 41 allows tax credits to be claimed for eligible research expenses above the threshold. Credits are intended to approximate how much you would invest in eligible research in the absence of credits.

Research tax credits are generally non-refundable and part of the IRC § 38 General Business Deduction.

However, for certain small businesses, the credit is virtually refundable, depending on the size of your paycheck. For tax years beginning on or after December 31, 2022, companies with gross revenues less than $5 million in the current tax year and no revenues in the last five tax years are eligible for unused research for the current year. You can offset up to $500,000 in tax credits. payroll tax burden.

IRC § 45R Non-Refundable Credit for Employee Health Coverage

Smaller employers with group health insurance coverage for their employees are eligible for a non-refundable tax credit. This credit is part of the IRC § 38 General Business Credit.

The credit is equal to 50% of the lesser of:

• Total amount of eligible group plan contributions offered through the state-based health insurance marketplace.
• The total amount of contributions you would have made if each employee had been enrolled in an eligible group plan and had a premium equal to the average premium for the small group market in the rated area in which that employee is covered .

This credit has some serious limitations.

• Only available for 2 consecutive years.
• In 2023, employers with 25 or fewer full-time employees and average annual compensation of $55,600 or less will benefit from credits in varying amounts. Only employers with 10 full-time employees or less than her and an average annual salary of $30,700 or less can claim the full deduction.