With an overwhelming number of tax credits out there, it can be hard to pick the ones your business is eligible for out of the crowd. Whose job is it to find these credits - yours or your accountant’s?
If you’ve read our other articles, you may fully expect us to answer that we’ll do the heavy lifting here for you. After all, a major reason to work with a monthly accounting service is to let an accountant take the bookkeeping and tax work off your plate.
However, even the most perfect accountant we can imagine wouldn’t have a complete success rate in obtaining every tax credit you’re eligible for. You should always keep an ear out for business tax credits just in case. After all, a claimed tax credit is a directly-lowered tax liability.
A quality accountant should, however, have a decent understanding of some of their most-claimed tax credits and know your eligibility. They might not have this same awareness when it comes to the specific or rare ones, but they can still check your eligibility for them if you ask! At CSI Accounting & Payroll, we’ve been helping our clients claim tax credits in this manner for over 50 years.
Here, we discuss the top six credits we believe you should ask your accountant to see if you qualify for.
The 6 Tax Credits
The following six credits are ones that we believe you should ask your accountant about.
1. Small Business Health Care Tax Credit
Also commonly referred to as the “Small Business Health Insurance Tax Credit,” this credit is sometimes searched for by employees who want to show their employer there is an incentive to provide them with health insurance.
Most small businesses don’t have health insurance for their employees, so we agree that this is a great incentive! It will pay up to 50 percent of premiums that the employer pays, good for up to two consecutive years. However, we believe that many companies that qualify for this credit probably miss out on it.
You may be eligible for this credit if:
- You have fewer than 25 full-time W-2 employees who make an average of under $56k per year.
- You offer a SHOP-qualified healthcare plan to your employees and pay at least 50 percent of the employees’ healthcare premiums.
To claim this credit, you need to fill out Form 8941. It goes on a corporate return and flows through a personal form.
2. FICA Tip Credit
Also known as the 45(B) credit or the Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips, it’s only used for food or beverage employers where tipping is customary.
This credit will generally equal the amount of Social Security and Medicare taxes that had to be paid by the employer on the employees’ tips, but it’s only applied to tips that exceed the January 1, 2007 federal minimum wage of $5.15 per hour.
You may be eligible for this credit if:
- Your employees received tips from customers for providing, delivering, or serving food or beverages for consumption - and then you had to pay employer Social Security or Medicare taxes on the tips.
To claim this credit, you need to fill out Form 8846 if you’re a partnership or S-Corporation. If you are neither, you can report the credit on Form 3800.
3. Work Opportunity Tax Credit
This is a major payroll credit! This goes to employers who hire workers from 10 certain targeted groups, and the maximum tax credit usually comes out to $2,400 (depending on the category of workers hired and the hours worked and wages paid in the first year.)
You may be eligible for this credit if:
- You hire qualified workers of these targeted groups: IV-A recipients, veterans, ex-felons, Designated Community Residents (DCRs), vocational rehabilitation referrals, summer youth employees, SNAP recipients, SSI recipients, long-term family assistance recipients, and qualified long-term unemployment recipients.
- The qualified worker in the targeted group is in their first year of employment (on or before December 31, 2025, and not rehired) and performs at least 400 hours of services for you.
To claim this credit, you need to fill out Form 8850 with the job applicant on or before the date that the applicant receives an employment offer. Additional forms may be required.
4. Employee Retention Credit (ERC)
The ERC is a COVID-19 relief effort that many eligible small businesses aren’t applying for simply because they aren’t aware of their eligibility. While there are many variables that go into this, you can be eligible for up to $26,000 per eligible employee. Don’t miss out on this limited-time credit!
A big misconception is that if you got the PPP loans, you can’t get the ERC. This isn’t necessarily true. Business owners who received PPP loans and had them forgiven can also get the ERC, but the money that was used in the PPP loan forgiveness can’t also be applied to claiming the ERC.
Read all about ERC eligibility requirements and the claim process here.
Ready for the next step? Learn about our ERC services and talk to us about your eligibility here.
5. Retirement Plans Startup Costs Tax Credit
You can also get a credit to help you offer your employees certain retirement plans (including SEP, SIMPLE IRA, or other plans like 401(k)) by offsetting startup costs (that cannot also be deducted), which can be a barrier to many small businesses. This credit can be up to $5,000 for three years.
You may be eligible for this credit if:
- You have 100 or fewer employees who received at least $5,000 in compensation from you last year (at least one being a non-highly compensated employee).
- In the three years prior to your eligibility for this credit, your employees did not benefit from another plan sponsored by you or a member of a controlled group that includes you.
You may also choose to auto-enroll in the plan to claim a credit of $500 for three years.
6. Research and Development Credit
This is also known as the Credit for Increasing Research Activities, which is yet another credit that many small business owners don’t know they’re likely eligible for. The credit can be up to $250,000 to offset the portion of Social Security paid by you, the employer.
You may be eligible for this credit if:
- You are a corporation whose stock is not publicly traded, a partnership, or a sole proprietorship with three-year (preceding the applied credit’s tax year) average annual gross receipts of $50 million or less.
- Your research activities are related to a new or improved function, performance, reliability, or quality, and they are qualified expenses under section 174.
- Your research must NOT be conducted after the beginning of commercial production, a duplication of an existing product or process, in the form of surveys or studies, relate to certain internal-use software, be conducted outside of the U.S. or Puerto Rico, be funded by another person or government entity, be specific to a particular customer’s need (as related to adapting an existing product or process), or be in the subjects of social sciences, arts, or humanities.
To claim this credit, you need to fill out Form 6765 if you’re a partnership or S-Corporation. If you are neither, you can report the credit on Form 3800.
Ask a Monthly Accountant About These Tax Credits
Before you ask why your accountant isn’t talking to you about these tax credits, keep in mind that accountants can’t possibly have every credit (and its eligibility) memorized. A quality accountant will still do a great job without your guidance, but it can’t hurt to ask them to determine your eligibility for credits that you’ve learned a little bit about, too! Now you’ll be able to ask about the six credits mentioned in this article.
If you’d like to talk with CSI Accounting & Payroll about if we can be a good fit for tax credits and beyond, click the button below for a free consultation.
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