Congress established special tax credits for small businesses long before billionaire Berkshire Hathaway CEO Warren Buffett wanted to pay more income tax.
A tax credit is generally much more valuable than a tax deduction of the same amount. A tax credit decreases the tax paid dollar for dollar, while a deduction lowers the taxable income and applies dollar for dollar against the tax.
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Here are some commonly-overlooked credits even your professional tax preparer may not know about:
1) The small employer pension plan credit is a whopping 50% credit for the cost of establishing a pension plan or educating employees about the plan. The credit may be taken up to three consecutive years, but is limited to $500 each year.
2) The fuel tax credit allows a credit for federal highway tax paid for fuel used off-highway in a business. Purchases like pumps, generators, compressors, tractors, trucks used in lots, landscapers, helicopters, crop-dusting could be eligible, and at over 18 cents per gallon, this can be a huge credit.
3) One of my personal favorites is the 10% rehabilitation credit. We use this credit in our office every year, and I’ve personally used it twice. If you are renovating any building built before 1936 and spend at least $5,000, you may qualify for this credit of 10% of the renovation costs.
4) The agricultural chemicals security credit is an obscure credit, but is a 30% credit of the cost of securing various chemicals that could be used for terroristic purposes. Things like training, security cameras and the buildings themselves may qualify for the credit.
5) The Work Opportunity Credit has been extended for veterans, and can amount to several thousand dollars of credit for each veteran hired.
6) The business energy credit provides credits of up to 30% of the cost of installing solar, wind or geothermal systems in even the smallest business. There is no dollar limit on this credit and we see many states offering an equivalent state credit, and many utilities offering subsidies for their cost. Check this site out for a listing of energy benefits.
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7) The employer provided child care credit provides up to a 35% credit of up to $150,000 annually for the cost of setting up and/or operating an employee child care facility. This even includes the cost of buying a building.
8) The disabled access credit is a 50% credit for extreme small businesses that spend money to provide disabled access. Think of things like wheelchair ramps, assist bars in restrooms, interpreters, sign-language, closed captioning and more.
Sadly, the small business health care credit established to motivate small businesses to setup health insurance programs for employees has proven so difficult to calculate that we see very few users of this credit. With 20-30 steps required to accumulate and calculate the credit we find for most of our small business clients that the cost of calculating the credit exceeds the credit.
Bob Jennings is a CPA, EA and CFP and author of “Understanding Social Security & Medicare.”