As accountants for small-to-medium businesses in the United States, we are more than familiar with answering the age-old question of how to save money against tax as a business owner.

In the article, we will break down the basics of tax breaks for businesses in the U.S.A.

First off… What actually is a tax break? Why do tax breaks even exist?

The term “tax break” or “tax incentive” is used as an all-encompassing term for the variety of tax minimisation techniques a government allows its taxpayers. Behind every tax break is a tax law that the government passes which explains how the tax break works.

Governments typically use “tax breaks” as a medium to incentivise or encourage a particular economic activity by reducing tax payments.

Below are examples of some of the different tax incentives governments typically use:

• Tax relief schemes for specific segments of the population

• Adjustments to different tax allowances and thresholds

• Introduction of new claimable expenses

• Adjustment to income that has to be declared

Tax Credits for Small Businesses

In this section, we will break down some of the different tax credits available to SMEs.

General Business Tax Credit (Form 8300)

The General Business Tax Credit consists of a number of individual tax credits designed to encourage small business owners to undertake specific activities such as purchasing electric vehicles, entering new markets, or retaining employees. 

The General Business Tax Credit is continuously evolving. For instance, the IRS introduced the Employee Retention Credit to help and encourage employers to keep employees on their payroll during the economic downturn.

We will soon be releasing a podcast and article going into further details on the General Business Tax Credit.

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Small business health care tax credit (Form 8941)

The small business health care tax credit allows eligible business owners to provide their employees with health insurance while saving up to 50% of the cost against tax.

• To qualify for this, a small business must have fewer than 25 employees and the average salary must be below $50,000  

We will be sharing more on the Small Business Health Care Tax Credit shortly!

 

Employer Credit for Paid Family and Medical Leave (Form 8994)

The Form 8994 Employer Credit for Paid Family and Medical leave is designed to encourage small business owners to provide leave to their employees covered by the Family and Medical Leave Act 2017. Eligible employee leave under the credit includes instances such as the birth of a child and family health emergency

In response to Covid-19, the U.S. government released a number of legislations to support businesses and employees; primarily the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

See our guides on Covid-19 support for self-employed and employed individuals in the US.

 

Alternative Motor Vehicle Credit (Form 8910)

Under the Alternative Motor Vehicle Credit (Form 8910) employers can access up to $8,000 towards the purchase of an “alternative” fuel source vehicle, such as a Mercedes-Benz F-Cell car or Honda Clarity.

The IRS currently recognises hydrogen power as an ‘alternative’ fuel source.

The list of qualified vehicles is currently extremely limited.

Disable Access Credit (Form 8826)

The disabled access credit is designed to make workplaces more accessible and inclusive. Under the tax credit qualifying, small business owners can claim up to 50% of eligible expenses.

• Qualifying work includes

• Installing ramps

• Improving storage and display units

• Upgrading restrooms

• Providing text in braille.  

Work Opportunity Credit (Form 5884)

The Work Opportunity Tax Credit allows employers who take on individuals with barriers to employment, such as ex-felons or veterans, a saving against tax.

We will be covering this credit in further detail in a future article!

Tax Deductions

Below are just some of the tax deductions that business owners can use to minimise tax.

• Business meals

• Client and employee entertainment

• Work-related travel expenses 

• Work-related car use

• Business Insurance

• Home office expenses

• Office (home) office supplies

• Depreciation

• Charitable contributions

• Education expenses

• Savings can be made on energy efficiency expenses

Any Further Questions?

To discuss your specific circumstance and see how we can help book a consultation or email us.

Alternatively, ready more of our resources on the US resource page