9 Tax Credits Available for Businesses Owners
Whether you are just a start up, or a seasoned and successful small business, there are a few tax credits that every business owner should be familiar with. Whether the business qualifies for 1 or more of these depends on a numerous factors. Learning about them, however, is paramount as a starting point to figuring out which ones could apply to your business. Here is the list of the 9 Tax Credits Available to Business Owners:
Empowerment Tax Credit
Employers can claim a federal tax credit of up to $3,000 for each full- or part-time employee who is an Empowerment Zone resident. The credit is based on 20% of the first $15,000 in wages earned by the qualifying employee. The credit can be claimed if the business pays qualified zone wages to a qualified zone employee.
IRS web source for more information: https://www.irs.gov/forms-pubs/about-form-8844
AB 150 Salt Workaround
Assembly Bill 150 (AB150) created a workaround for the current $10,000 limitation on the deduction for state and local taxes paid for individuals that was established by the Tax Cuts and Jobs Act of 2017 (TCJA).
California’s AB150 creates an elective tax that allows the taxes on pass-through income to be paid at the entity level. This means owners will be able to bypass the otherwise applicable federal cap limitation.
CPA journal web source for more information: https://www.cpajournal.com/2021/11/02/california-approves-salt-cap-workaround/
Cost Segregation for Real Estate
Cost segregation is a tax strategy that creates massive deductions for taxpayers who own restaurants. Cost Seg is the correct and most accurate method to depreciate commercial property. When a business or individual purchases a restaurant, the costs of that project are generally broken down between land and building.
IRS web source for more information: https://www.irs.gov/businesses/cost-segregation-guide-chapter-72-industry-specific-guidance-restaurants
Cost Remediation for Wineries (R&D Tax Credit)
Refunds are available for companies performing research within the Winery & Vineyard Industry. The research credit can provide dollar-for-dollar cash savings for companies performing activities related to the development of new or improved products and processes.
Some activities that may qualify include bottling, corking/ packaging processes, Filtration and fermentation techniques, Grape strains to achieve desired flavor or aroma profiles, Irrigation systems, Mixing techniques, Organic ingredients, supplements, and nutrients, Recycling and waste management techniques, Soil and rootstock processes.
State Earned Income Tax Credit
If you have low income and work, you may qualify for CalEITC. This credit gives you a refund or reduces your tax owed.
IRS web source for more information: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/who-qualifies-for-the-earned-income-tax-credit-eitc
Senate Bill 408 - $10,000 Credit
This bill, for taxable years beginning on or after January 1, 2021, and before January 1, 2027, would allow a credit against those taxes to a qualified taxpayer in the amount of $10,000. The bill would define a qualified taxpayer as a taxpayer that owns and operates a bar, hotel, or restaurant that meets specified requirements, including that the taxpayer temporarily ceased business operations for at least 30 consecutive days during the 2020 or 2021 taxable year in response to an emergency order, as defined.
Senate Bill web source for more information: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202120220SB408
Work Opportunity Credit
A Federal Tax Credit, Known as WOTC this is available to employers for hiring individuals from certain targeted groups who have consistently faced significant barriers to employment.
Targeted Groups include Qualified IV-A Recipient, Ex-Felon, Designated Community Resident, Vocational Rehabilitation Referral, Qualified Veteran, Summer youth Employee, Supplemental Security Income Recipient, Long-term Family Assistance recipient, Qualified Long-term Unemployment recipient. (A qualified long-term unemployment recipient is one who has been unemployed for not less than 27 consecutive weeks at the time of hiring and received unemployment compensation during some or all or the unemployment period.)
IRS web source for more information on pre-screening, certification, limitations and how to claim the credit: https://www.irs.gov/businesses/small-businesses-self-employed/work-opportunity-tax-credit#targeted
Small Business Hiring Tax Credit - Senate Bill 1447
This bill provides financial relief to qualified small businesses for the economic disruptions in 2020 that have resulted in unprecedented job losses. Taxpayers can use the credit against income taxes or can make an irrevocable election to apply the credit against sales and use taxes.
The California small business hiring tax credit provides qualified small business employers a $1,000 corporate or personal income tax credit for each net increase in qualified employees, not to exceed $100,000, for any qualified small business employer.
CA Franchise Tax Board web source for more information: https://www.ftb.ca.gov/file/business/credits/small-business-hiring-credit.html
Qualified Opportunity Zoning Map (QOZ)
A QOZ is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Their purpose is to spur economic growth and job creation in low-income communities while providing tax benefits to investors. Taxpayers can invest in these zones through Qualified Opportunity Funds.
IRS web source for more information: https://www.irs.gov/credits-deductions/businesses/opportunity-zones
For more detailed information, review of your current tax liabilities, or to see what credits might be available to you and your situation, simply schedule a 45-minute discovery call.
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