Co-authored by Christine Bieniosek, Senior Accountant, CPA
From businesses to individuals, we all feel the strain that taxes can put on us over the course of the year. Taxes squeeze the profit margins of every small business and, if you don’t know how to take advantage of the tax benefits available to you and your business, you could be paying taxes you don’t actually need to pay. Here are four tax credits most businesses qualify for that can make a huge difference in your available funds.
Research and Development (R&D) Tax Credit
If your company is continually trying to improve your products or processes, generate new ideas, or test your products, this tax credit is easily attainable. The research and development tax credit allows you to offset the associated costs if certain qualifications are met in regard to the development process. CADD and BIM are two programs almost every contractor uses, especially for design-build projects. If you use these on any of your projects, you have probably incurred some R&D expenses. In essence, this is the federal government working with businesses to ensure that growth and development are encouraged and global competition is met.
Employee Retention Credit
Needless to say, COVID-19 has been disastrous for businesses of various sizes and industries. Many businesses have faced the ultimatum of closing their doors or releasing employees. The federal government built a backup plan so companies in trouble can easily recoup a portion of their employee’s wages in the wake of this crisis. The employee retention credit allows companies to receive a tax credit equal to 50% of qualifying employees’ wages (maximum $10,000) between March 12, 2020, and January 1, 2021. This tax credit is intended to allow businesses the freedom to keep their essential employees on staff during this crisis, despite declining profits. Businesses that received paycheck protection program loans are not eligible for the credit.
Qualified Family Leave Credit & Sick Leave Credit
It can be financially stressful for your company when one of your essential employees takes family leave or sick leave. Luckily, your business won’t be left footing the bill for these mandatory leave periods. The qualified family leave credit allows you to claim a credit of $200/day up to $10,000 per employee to care for a son or daughter due to a school closure or childcare unavailability during the COVID-19 public health emergency for up to ten weeks. Qualified sick leave is equal to the lesser of the amount of his/her leave pay or either (1) $511 per day while the employee is receiving paid sick leave to care for themselves up to a total of $5,110 for ten days, or (2) $200 per day, up to a total of $2,000 for ten days, if the sick leave is to care for a family member or son or daughter whose school is closed (available for up to 80 hours).
Work Opportunity Tax Credit
Historically, certain groups have a harder time finding employment in our society. From war veterans to individuals who have been rehabilitated by our prison system, it can be extremely difficult for some individuals to find gainful employment. As a company, the government will give you a $9,600 credit, every year, for any employee that qualifies under the work opportunity tax credit. Not only will you be providing these individuals an opportunity to build a career, your business will benefit from a sizeable tax credit year after year.
As a business owner, tax credits can easily be the difference between a year of losses and a year of record profits. If you are hesitant to employ a full-time CPA, or just want advice on how you can increase your profit margin year over year, contact VonLehman’s Construction and Real Estate experts at firstname.lastname@example.org or 800.887.0437.