There’s a long laundry list of tax deductions that small business owners may claim on this year’s return, ranging from depreciation for heavy equipment to routine office supplies. But don’t forget about potential business credits for your clients. Unlike a tax deduction, a federal tax credit reduces tax liability on a dollar-for-dollar basis. Here’s a quick roundup of five of the most popular business credits on 2014 returns.
1. Research credit. Like a phoenix rising from the ashes, the research credit was temporarily revived late in 2014, retroactive to the beginning of the year. The basic credit is equal to 20 percent of the excess of qualified research expenses for the year exceeding a base amount. Alternatively, a business may elect to use a simplified credit based on 14 percent of the amount by which qualified expenses exceed 50 percent of the average for the previous three years.
2. Work Opportunity Tax Credit. As with the research credit, the Work Opportunity Tax Credit (WOTC) was retroactively reinstated for the 2014 tax year only. The WOTC is available for hiring members of certain target groups and qualified veterans. For each qualified fulltime worker, the credit is generally equal to 40 percent of the individual's first-year wages up to $6,000, for a maximum credit of credit of $2,400, but the maximum credit for a disabled veteran can be as high as $9,600.
3. Small business health credit. For 2014, a qualified small business can claim a credit for 50 percent of the health insurance premiums paid on behalf of employees, up from 35 percent in 2013. To be eligible for the credit, the business must pay premiums on behalf of employees enrolled in a qualified health plan offered through a Small Business Health Options Program (SHOP) marketplace or otherwise qualify for an exception. The credit is available to eligible employers for two consecutive tax years.
4. Disabled access credit. The disabled access credit is available to a small business that makes its premises more accessible to disabled individuals under the auspices of the Americans with Disabilities Act (ADA). For this purpose, a small business qualifies if it had gross receipts of $1 million or less or didn’t employ more than 30 full-time employees in the preceding tax year. The credit is generally equal to 50 percent of the first $10,000 of qualified expenses for a maximum credit of $5,000.
5. Employer-provided childcare credit. The dependent care credit is well-known to families who pay for child care services while they work. But a business may also qualify for a credit if it provides child care benefits on the jobsite or nearby. The credit is equal to 25 percent of qualified child care services plus 10 percent of qualified resource and referral expenses, limited to a maximum credit of $150,000 for the year.
Remember, of course, that this list is not all-inclusive. Make sure your small business clients are aware of all the credits available on their 2014 returns. At the same time, you can provide guidelines for claiming business tax breaks in 2015.
About Ken Berry
Ken Berry, Esq., is a nationally known writer and editor specializing in tax, financial, and legal matters. During his long career, he has served as managing editor of a publisher of content-based marketing tools and vice president of an online continuing education company. As a freelance writer, Ken has authored thousands of articles for a wide variety of newsletters, magazines, and other periodicals.