Small Business Taxes: Don’t Miss Out on Tax Credits for New Employees

Posted on June 28, 2016

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These Credits Can Make a Significant Difference in Your Small Business Taxes if You Act Quickly

small business taxes

Your business is growing, and after carefully weighing the costs and benefits, you’ve hired new team members. In the busyness of onboarding and training your new employees, you may have missed something that can improve your small business taxes. There are credits for hiring new employees if they meet certain qualifications, and it’s worth your time to check it out to see if you’re eligible.

There are a number of employee tax credits, but here are the main options that you should examine to see if you can reduce your small business taxes:

Work Opportunity Credit: This credit is for hiring an employee that belongs to one or more of a list of qualifying groups, such as ex-felons, certain veterans, food stamp recipients, summer youth employees and those that have been unemployed for at least 27 weeks. With these credits, you only have 28 days from their start date to file a Form 8850 with the IRS. The agency will then verify that the employee is a member of the eligible group.

Empowerment Zone Credit:  If your company hires new employees and you operate in a rural or urban area designated as an empowerment zone, you may be eligible for an employee credit. This means you can claim a tax credit of 20 percent of the employee’s wages, up to $15,000. Obviously, this makes a significant impact on your small business taxes. In order to qualify for an empowerment zone credit the employee must work at a location in an empowerment zone and also live within the empowerment zone.

Indian Employment Credit: This credit is for hiring new employees that are Native American (though the name is technically the Indian Employment Credit). The credit is given to businesses that hire a worker that is a member of a Native American tribe and also lives on or near a reservation.

Credits for R&D: Research and development is a big area of investment for many small businesses, particularly if you are a tech start-up. If you hire a new employee for the purposes of improving research and development, you can claim a new employee credit.

State credits: Don’t forget to check with your own state to see what new employee credits benefit small business taxes. For example, California offers both a work opportunity credit and an empowerment zone credit in addition to those available through the federal government.

For more information about how new employee credits impact your small business taxes, make an appointment with Bert Doerhoff, CPA, of AccuBiz. Tax credits are an important step toward lowering your overall tax bill, so talk with an accountant about capturing all of the credits your business is eligible to receive.

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Posted in: Small Business