By: John S. Morlu II, CPA
Tax credits and deductions are powerful tools that can help businesses lower their tax liability or increase their refunds. Understanding which credits and deductions apply to your business can save money and support growth. This article outlines key tax credits and deductions available to businesses, along with their benefits.
Tax Credits for Businesses
Tax credits directly reduce the amount of taxes a business owes. Some credits are even refundable, meaning businesses can receive a refund if the credit exceeds their total tax liability. Here are some common business tax credits:
1. Employer-Provided Childcare Credit
Businesses that offer childcare services to employees may qualify for a tax credit. This incentive encourages companies to support their workforce by providing childcare options.
2. Opportunity Zones
Companies investing in designated Opportunity Zones, which are economically distressed areas, can benefit from this program. It allows businesses to defer taxes on eligible gains while promoting community development.
3. Fuel Tax Credit
The Fuel Tax Credit (FTC) provides a refundable credit for fuel used in specific work-related activities, such as farming or certain types of transportation.
4. Clean Vehicle Credits
Businesses that purchase electric vehicles (EVs) or fuel cell vehicles (FCVs) may be eligible for clean vehicle tax credits. These credits support environmental sustainability and clean energy adoption.
5. Credit for Builders of Energy-Efficient Homes
Contractors who build or significantly improve energy-efficient homes can claim tax credits of up to $5,000 per home. This credit encourages the construction of environmentally friendly housing.
6. Advanced Energy Project Credit
Manufacturers and entities investing in advanced energy projects, such as renewable energy systems, can apply for tax credits through the Department of Energy.
7. Work Opportunity Tax Credit (WOTC)
Employers who hire individuals from certain target groups—such as veterans or people who have faced significant barriers to employment—can claim the WOTC. This credit promotes workplace diversity and inclusion.
8. Research Credit
Businesses conducting qualified research activities can claim this credit to offset expenses. It incentivizes innovation and technological advancements.
9. Rehabilitation Credit
This credit provides financial incentives for businesses to rehabilitate and preserve historic buildings. It supports the restoration of culturally significant properties.
10. FICA Tip Credit
Restaurants, cafes, and other food and beverage businesses with tipped employees can claim a credit for the Social Security and Medicare taxes paid on their employees’ tips.
11. Small Employer Pension Plan Startup Costs and Auto-Enrollment Credit
Small businesses that establish SEP, SIMPLE IRA, or qualified pension plans can claim up to $5,000 to cover startup costs. Additional credits may apply for auto-enrollment features.
Tax Deductions for Businesses
Tax deductions reduce a business’s taxable income, which can lower its overall tax liability. Unlike credits, deductions don’t directly reduce taxes owed but still offer significant savings. Proper documentation is required to claim deductions. Here are some common deductions:
1. Energy-Efficient Commercial Buildings Deduction
Building owners who improve energy efficiency in systems like lighting, heating, or cooling by at least 25% may qualify for a deduction. This encourages businesses to adopt sustainable practices.
2. Home Office Deduction
If you use part of your home exclusively for business purposes, you may deduct related expenses, such as utilities, rent, or mortgage interest, based on the proportion of your home used for business.
3. Standard Mileage Rates
Businesses can deduct vehicle expenses for business use by applying standard mileage rates. These rates also apply to charitable, medical, or military-related moving purposes.
4. Business Interest Deduction
Businesses can deduct interest expenses on business loans, but there are limits. Understanding these limits is essential to claim this deduction accurately.
Maximizing Your Tax Benefits
To take full advantage of these tax credits and deductions, keep thorough and accurate records of all qualifying expenses. Work with a tax professional or use IRS resources to ensure compliance and identify additional opportunities for savings.
Whether you’re investing in your employees, supporting sustainability, or expanding your operations, leveraging tax credits and deductions can help your business grow while keeping your tax burden manageable.
Author: John S. Morlu II, CPA
John S. Morlu II, CPA, is the CEO and Chief Strategist of JS Morlu, a globally acclaimed public accounting and management consulting powerhouse. With his visionary leadership, JS Morlu has redefined industries, pioneering cutting-edge technologies across B2B, B2C, P2P, and B2G landscapes.
The firm’s groundbreaking innovations include:
• ReckSoft (www.ReckSoft.com): AI-driven reconciliation software revolutionizing financial accuracy and efficiency.
• FinovatePro (www.FinovatePro.com): Advanced cloud accounting solutions empowering businesses to thrive in the digital age.
• Fixaars (www.fixaars.com): A global handyman platform reshaping service delivery and setting new benchmarks in convenience and reliability.
Under his strategic vision, JS Morlu continues to set the gold standard for technological excellence, efficiency, and transformative solutions.
