Entrepreneurs can save money from their tax bill through tax credits, which provide a way for them to use the money for business growth or personal use. We all know every penny saved during the initial days of business counts, so if you pay taxes, you can look into available credits and save more.
The next tax season is just three months away, and many of you will be filing your income taxes. The IRS has many tax credits that remain unclaimed by businesses or self-employed individuals, as they are not aware of them.
There are many overlooked IRS tax credits that we have listed here for entrepreneurs. You can claim tax credits for prior years as well, so if you have not claimed them previously, you still have time to claim them in the next season.
What are the most overlooked IRS credits for entrepreneurs?
Before you check the most overlooked IRS Credits for entrepreneurs, you should know what a tax credit means. Tax Credits reduce your tax bills directly, whereas tax deductions lower your taxable income; both are important to lower your tax burden.
Here are the IRS tax credits that you should definitely look into, which most entrepreneurs overlook:
- Research and Development Tax Credit:
- If your business involves research & development for innovation, technological changes, you can claim the R&D tax credit.
- You can qualify for a credit of 20% of qualified expenses, where the eligible businesses can offset up to $500,00 from payroll taxes.
- Retirement Plan Startup Credit:
- You can claim the retirement plan credit under the SECURE Act 2.0 if you are contributing to retirement plans as an employer or for yourself.
- You can claim up to $1000 credit for each employee on employer contributions, and $5000 each year up to three years for the retirement plans.
- Investment Tax Credits:
- If you invest in clean electricity after 31 December 2024, you can claim this credit. This credit will phase out after 2032 or when the US reaches the HGH emission goals.
- The credit under the ITC is 6% of the qualified investment, which can go up to 30% of the qualified expenses.
- You can claim this credit through IRS Form 3468 and file it with your annual tax return.
- Work Opportunity Tax Credit:
- If you have given an employment opportunity to someone from a targeted group listed on the IRS who faced difficulty in getting employment, you can claim this credit.
- The credit will be around 40% of the wages you paid to the employees from the targeted groups.
- Disabled Access Tax Credits:
- If you have spent on providing access to individuals with disabilities, whether it is employees or customers, or hired disabled people, you can claim the Disabled Access Tax Credit.
- You can claim this credit through Form 8826 if you are a small business with not more than 30 employees.
- The credit amount can be equal to 50% of the expenditure you paid for the disability access.
- You can also claim a deduction of $15,000 a year for the disabled access expenses.
- Credit for Childcare facilities and services:
- If you provide childcare facilities and services for the employees, you can claim this credit.
- You can claim 25% of the childcare facilities or 10% of the childcare resources and services.
What are additional tax credits you can take advantage of?
With the above-mentioned IRS Tax Credits, you can check out the following sector-specific tax credits that you can claim with the tax return:
- Qualified Plug-in Electric Vehicle Credit
- Renewable Electricity, Refined Coal, and Indian Coal Production Credit
- Distilled Spirits Credit
- Energy Efficient Home Credit
- Qualified Plug-in Electric Drive Motor Vehicle credit, and many others.
How can you claim these IRS tax credits?
When you are sure of the IRS tax credits you qualified for, you can claim or prepare for \ the tax credits in the following ways:
- You must have all the documents and records to claim these credits, so start preparing the form today itself and make sure all your documents and records are kept for later use.
- You should check which IRS Form or schedule you must claim with the tax return to claim the tax credits.
- You can take the help of tax professionals or IRS Free File to prepare for the taxes and credits you wish to claim.
What are the most overlooked IRS tax deductions for entrepreneurs?
Since we are talking about the tax credits, let’s not skip the tax deductions that most entrepreneurs overlook, with major deductions, such as the home office deduction, the Qualified Business deduction, and others:
- Meal Expenses:
- If you provide work lunch to your employees, you can deduct the meal expenses for the eligible meals.
- The deduction is allowed for 50% of the meal expenses, which can lower your taxable income.
- Internet/ Phone bills deductions:
- Small businesses can claim a tax deduction on cellphone and internet bills.
- You can deduct the business use of the internet and phone from the bills and deduct it from the taxable income.
- Car Mileage:
- You can deduct the vehicle cost for the travel you did for business purposes.
- You can claim the deduction either through standard mileage rates or through the actual expense method, where you add up the cost to the total mileage recorded for the year.
With so many IRS tax credits and deductions available, the next time you file the tax return, remember to check your eligibility to claim them.
