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The Different Types of Small Business Tax Breaks That Exist Today



If you’re confused by taxes you’re not alone. Not knowing what you can or can’t deduct, what tax breaks are, or how to get them leads to frustration, anxiety, and even fear, as forosophobia sufferers know.

And that’s just for personal taxes. Things get more complicated for small businesses.

Small business tax breaks do exist, and knowing what they are can save you some serious cash when it comes to filing taxes. If you’re not sure what counts as a tax break, keep reading for a quick primer on how small businesses can save money.

Tax Credits vs. Tax Deductions

Small business tax breaks include tax credits and tax deductions. Both reduce your tax liability, but they are not interchangeable.

Tax deductions reduce your total taxable income. Tax credits reduce your tax bill. A small business owner can benefit from both, but tax credits offer better savings.

New Hire Tax Credits

Hiring from a diverse pool of talent helps everyone – including small business owners. There are lots of different tax credits for hiring eligible employees. You can use Form 8850 to pre-screen them and receive the Work Opportunity Tax Credit.

Employees must be from the targeted groups. This group includes people such as ex-felons, veterans, and SNAP recipients.

Employee Retention Credit

There is also a tax credit for retaining employees, called the ERC or employee retention credit. This credit is part of the CARES Act (Coronavirus Aid, Relief, and Economic Security). The ERC was designed to encourage business owners to keep employees on their payroll during the pandemic.

How does ERC Covid relief work? It’s a refundable credit that an employer could claim against their Social Security taxes. Up to 70% of qualified wages per employee, and to $10,000 per employee per quarter can be claimed.

The ERC applies to employers with 500 or fewer employees.

Health Insurance Tax Credit

Employers with fewer than 50 full-time employees may qualify for a health insurance credit if they provide insurance to their employees. To do so, employers must enroll in SHOP, or Small Business Health Options coverage.

This credit can be worth up to 50% of your employee-only premium contributions. This credit is available for two consecutive tax year periods.

Business Expenses

Business expenses, or write-offs, are tax deductions. They can also be easy to miss since you need to keep accurate records as proof of your expenses. Unlike tax credits, some of these deductions may not apply to every industry.

Tax-deductible small business expenses may include:

  • Office supplies – printer ink, pens, paper, etc. all add up
  • Office furniture
  • Software subscriptions
  • Legal fees
  • Property rent
  • Bad debt – business debt you are unable to collect, such as loans to suppliers and distributors
  • Travel expenses – airfare, lodging, and similar costs for conducting business when traveling

Consult a tax professional for more info on business tax expenses. They may spot lesser-known or industry-specific expenses that you can claim.

Take Advantage of Small Business Tax Breaks

Smart management will take advantage of small business tax breaks to help them stay competitive. Fortunately, there are plenty of tax deductions and credits available – if you know what to look for.

If you found this article helpful, be sure to check out our Finance and Business sections for additional help.

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