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Nine Tax Credits for Small Businesses to Increase Profits

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Tax credits for small enterprises are economic incentives offered by the government to help companies expand and flourish economically. These credits are often applied to income taxes and can assist in decreasing a company’s overall tax liability. 

They may be a substantial source of financing for small firms, allowing them to reinvest in their operations and grow. 

Credits for developing new technologies, employing and training people, investing in renewable energy, and acquiring energy-efficient equipment are all common tax breaks for small firms.

Small company owners should be aware of the numerous tax benefits available to them. Here are nine tax breaks that may be available to your small business.

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Tax credits: What are they and why are they important?

Businesses gain from tax credits because they reduce their tax payments while also benefiting their customers, staff, and the environment. Tax credits are used by the IRS to sway corporate choices and grant dollar-for-dollar reductions in tax payments. In addition to learning how the credit is computed, you should have access to tax specialists and resources to assist you in filing your company’s tax return. 

When you use tax credits, your company’s tax bill is reduced by a set sum or percentage. Because they give a dollar-for-dollar reduction, tax credits are the most economical approach to minimize your tax bill. Small companies can benefit from a slew of tax breaks. Ensure that you do not skip it out.


Tax deductions differ from tax credits, but both can help you save money.

Tax credits and deductions are the two forms of tax advantages that may help you save money on your taxes. They operate differently, however, and have different impacts on your tax liability.


Tax Credits:

In contrast, tax credits are dollar-for-dollar reductions in your tax payment. This implies that if you owe $1,000 in taxes and receive a $500 tax credit, your tax burden will be $500.

Tax credits are classified as either refundable or non-refundable. Non-refundable tax credits, despite their capacity to decrease your tax burden to zero, cannot be reimbursed if the credit exceeds your tax due. You may be eligible to receive a refund for tax credits that are refundable even if your tax burden exceeds the credit.

For example, if you owe $500 in taxes but have a $1,000 refundable tax credit, you will not only have a zero tax payment but will also receive a $500 refund.

Tax Deductions:

Tax deductions are expenditures that you can deduct from your earnings. Taxable income is calculated by deducting specific expenditures from your income, such as mortgage interest, charity donations, and company expenses. Your taxable income determines your tax burden.

Assume you had $50,000 in taxable income and $10,000 in deductions, for a total of $40,000 in taxable income. As a result, you would only pay taxes on $40,000 rather than $50,000. You will save various amounts of tax depending on your tax bracket.


Overall, tax credits and deductions both help you pay less tax to the government. Tax credits, on the other hand, are more favourable than tax deductions since they decrease the amount of tax owing immediately, whereas tax deductions minimize the amount of your earnings that is subject to taxes. 


What are the Nine best tax credits for small businesses?


1. Health Care Credits for Small Businesses

Small enterprises and tax-exempt organizations can use the Small Business Health Care Tax Credit to provide health insurance to their employees.

A small business must fulfill the following conditions to be eligible for the credit:

  • A firm with less than 25 full-time equivalent (FTE) workers.
  • An annual pay of less than $54,200 is paid per FTE.
  • Through Small Business Health Options Programs (SHOP), employers must contribute at least 50% of employee health insurance premiums.


The tax credit is valued up to 50% of the employer’s premium payments for their employees’ health insurance coverage, with a maximum of 35% for tax-exempt organizations. The validity of the credit is 2 years.

For example, if a small firm pays $50,000 per year toward employee health insurance premiums and fulfill all of the eligibility standards, it might earn a tax credit of up to $25000 for each of the two years.

This credit is only accessible to small companies who purchase health insurance via a SHOP Marketplace, and it is only available for two years. Furthermore, the benefit only applies to federal income tax returns.

2. A tax credit for work opportunities WOTC

The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to businesses that hire people from particular groups who have previously faced job hindrances. The Small Business Job Protection Act of 1996 established it, and it has been renewed and altered several times since then. 

The targeted groups eligible for the WOTC include;

  • Long-term jobless people have been out of work for at least 27 weeks.
  • Vocational rehabilitation referrals
  • Employed as summer youth (16-17 years of age)
  • TANF (Temporary Assistance for Needy Families) recipients
  • Veterans
  • Felons who have been rehabilitated
  • Those who dwell in empowerment zones, enterprise communities, or renewal communities are considered inhabitants of designated communities.
  • Supplemental Nutrition Assistance Program (SNAP) recipients
  • Supplemental Security Income (SSI) recipients


The tax credit amount is determined by the specific employee group, the number of hours worked and the wages paid in the employee’s first year of work. Employees have the potential to receive up to a maximum credit of $9,600.

Within 28 days of employing a new employee, employers must file IRS Form 8850 to their state workforce agency. In order to verify the employee’s eligibility, employers must additionally file ETA Form 9061 or 9062.

3. The Credit for Qualified Small Business Stock

The Eligible Small Business Stock Credit, commonly referred to as Section 1202, is a tax credit provided by the United States government to encourage investment in small businesses. It allows investors to deduct a portion of the gain on the sale of qualified small firm shares from their taxable income. 

In order to be eligible for the credit, the stock must meet certain requirements, such as being a domestic C business with gross resources of fifty million dollars or less at the time the stock was issued and being held for a minimum of five years before it could be sold.

The greatest gain a taxpayer may deduct for a single investment is $10 million, or ten times their basis in the stock. The government intends to stimulate investment in startups and small enterprises by providing a tax benefit to investors.

4. Tax Credits for Energy Efficiency

Energy Efficiency Tax Credits are a kind of government tax credit that encourages individuals and businesses to invest in energy-efficient items and systems. These tax breaks are designed to stimulate the use of renewable energy, minimize carbon emissions, and support long-term growth.

Energy efficiency tax credits are offered for many kinds of domestic energy-efficient renovations, such as wind turbines, solar panels, geothermal heat pump infrastructure, and energy-efficient windows and doors.

The total amount of tax credit available varies depending on the kind of product or system used, as well as the amount invested. 

The accessibility and the quantity of tax breaks can shift from year to year, and some tax credits may have deadlines for use. It’s always a good idea to consult with a tax professional or the state’s tax department for the most recent details on prospective tax credits.

5. Tax Credits for Renewable Energy

To encourage the use of renewable energy technologies such as solar, wind, geothermal, and biomass, the government grants renewable energy tax credits. Renewable energy tax credits are intended to stimulate the adoption of renewable energy sources while decreasing reliance on fossil fuels.

The federal government of the United States provides two substantial tax incentives for renewable energy: the Investment Tax Credit (ITC) and the Production Tax Account (PTC). 


ITCs give a tax credit of up to 26% of the cost of installing solar panels, whereas PTCs allow taxpayers to share 2.5 cents for every kilowatt-hour generated by wind turbines. In addition to federal incentives, several states provide renewable energy tax credits. California, for example, provides homeowners with a solar tax credit of up to $2,000 for putting solar panels on their houses.

These tax credits have been critical in making renewable energy more affordable and accessible to a wider variety of consumers and businesses. As a result, clean energy is becoming a major rising source of electricity in many parts of the world.

6. The Disabled Access Credit

The Disability Access Credit encourages companies to make their workplaces accessible to customers with disabilities. The credit is intended to reimburse the costs of upgrading a business’s physical infrastructure, such as building wheelchair ramps, accessible parking spaces, or enhanced toilet facilities.


It is available to businesses with annual revenues of $1 million or less, or with 30 or fewer full-time employees, and can cover up to 50% of disability access expenditures ranging from $250 to $10,000. This means you can claim the Disabled Access Tax Credit up to $5,000 in a single year. 


Businesses with 15 or more employees must provide reasonable accommodations to employees with disabilities under the ADA, and further ADA laws control public access to certain types of operations. 


The government provides this tax credit to offset the financial impact of such changes. The goal is to encourage businesses to invest in accessibility enhancements that would otherwise be prohibitively expensive.

7. The Tax Credit for Research and Development

The R&D Tax Credit is a tax credit offered by the United States government to encourage firms to invest in research and development. 

Businesses must carry out operations that meet specified requirements, such as developing new or improved goods or processes, conducting scientific or technological testing or research, or improving the design or function of existing things or processes. 


The credit amount is computed as a percentage of the company’s fiscal year qualified research expenses (QREs). Employee salaries, supplies, and contractor expenses linked with qualifying R&D activities may qualify as QREs.


The R&D Tax Credit is available to firms of all sizes and can be used to lower both regular income tax and alternative minimum tax payments. It is intended to encourage innovation and economic advancement by incentivizing firms to participate in R&D activities.


 The government seeks to encourage enterprises to explore new technologies, manufacture new goods, and improve existing processes by covering a portion of the costs associated with R&D, which may aid in economic development and job creation.

8. The Tax Credit for Low-Income Housing

The Low-Income Home Tax Credit (LIHTC) is a tax incentive program in the United States that encourages the creation and preservation of affordable housing. The credit is available to developers that construct or remodel rental homes that fulfill specified affordability standards.

To qualify for the LIHTC, a developer must set aside a specified number of units in the rental property for households earning less than 60% of the local median income for a minimum of 30 years. A percentage of the credit is dependent on the cost of creating or rehabilitating affordable units, and the rate of improvement is determined by the condition of the property, the cost, and the availability of ICHTCs.


LICHTC supports low-income families, elderly, and people with disabilities with secure and stable housing. The Affordable Housing Policy facilitates access to affordable housing for low-income people and families. The program combats homelessness and housing instability by sustaining low-income neighbourhood.

9. The Tax Credit for New Markets

The New Markets Tax Credit (NMTC) is a tax credit program established by the United States government to encourage investment in low-income regions. It provides a tax credit to investors who participate in qualifying community development enterprises (CDEs), which provide financial and other help to firms and projects in these areas. 

The NMTC is equivalent to 39% of the total investment made by the investor in a qualified CDE and is claimed over seven years, with five percent claimed in each of the first three years and six per cent claimed in each of the following four years. The goal is to spur economic growth, create jobs, and improve the quality of life in such areas.

A project must be located in a low-income neighborhood or census tract with a poverty rate of at least 20% or median family earnings that do not exceed 80% of the local median income to be eligible for the New Markets Tax Credit. It must also include a qualified firm with at least 50% of its employees living in a low-income area.

Projects that qualify for the credit typically involve the acquisition, renovation, or construction of real estate in low-income communities, or the expansion of existing businesses in those areas. 

Project examples include;

  • Residential property restoration companies that restore and flip houses.
  • Construction or renovation of educational institutions or community centers
  • Construction or refurbishment of industrial buildings that offer jobs.
  • Construction and restoration of a hospital.
  • Construction or repair of institutions that assist women, minorities, or other underrepresented groups.


Consult with your tax expert about small-business tax benefits.

Speak with an accountant whether your small business qualifies for any of the aforementioned tax benefits. In conclusion, small-business tax credits may be beneficial resources for companies looking to reduce their tax costs and enhance their bottom line. However, determining eligibility and navigating the complex tax system are arduous tasks.

Small company owners should speak with a trained tax professional to ensure they are taking advantage of all possible credits and deductions. 

Tax professionals may help firms maximize tax savings and accomplish financial objectives by advising them on how to obtain tax credits. Please contact a tax expert if you want to learn more about the small-business tax credits that are available to you.

Tax season is here, and it’s time to take advantage of all available small-business tax benefits. Working with a tax expert will help you save time, money, and stress. The best accountants and tax specialists in Norcross can help you optimize your deductions and credits to save the most money on your taxes. 

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