Business Tax Credits Not to be Missed


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There are a number of valuable credits to look for when filing returns this season.

With the holiday season behind us, ‘tis the season for taxes and that time of year when businesses want to ensure they’re getting all the bang for their bucks. In addition to the Employee Retention Credit, it’s important not to miss these other valuable business tax credits when filing returns this tax season:

Work Opportunity Tax Credit

The Work Opportunity Tax Credit (WOTC) is available to all employers to retain and hire individuals from certain targeted groups, including qualified veterans, ex-felons, and recipients of food stamps, to name a few. Generally, the amount of the WOTC is 25% or 40% of qualified wages paid to an eligible worker during their first year of employment, up to a credit of $6,000 for each qualified new hire.

Credit for Increasing Research Activities

Although this is one of the most well-known business tax credits, many taxpayers do not claim it because of common misconceptions that their activities do not constitute research and development activities. Taxpayers who design, develop or improve products, processes, techniques, formulas or software could be eligible for this credit. It is intended to incentivize businesses to pursue innovation with increasing investment and can amount to as much as 20% of the excess of qualified research expenditures for the tax year over a base amount. For C corporations, a research and development tax credit against the entire net income component of the corporation business tax is allowed for qualifying research activities performed in New Jersey.

Credit for Employer-Provided Childcare Facilities and Services

If employers offer childcare for employees, they might be eligible for the Employer-Provided Childcare Facilities and Services tax credit for up to 25% of qualified childcare expenses, plus 10% of “qualified childcare resources and referral expenditures.” This credit is capped at $150,000 per tax year, and enrollment in the childcare facility must be open to all employees for use.​

Qualified Electric Vehicle Credit

With a trend towards clean energy, we are seeing more and more alternative motor vehicles hitting the roads. To help incentivize electric vehicle purchases, the IRS provides up to a $7,500 tax credit to those purchasing a qualifying vehicle during the year, which includes passenger vehicles and light-duty trucks. Qualifying vehicles include those with a plug. This includes plug-in hybrids, not just completely battery-electric vehicles. There is no tax credit for leased electric vehicles.

Credit for Small Employer Pension Startup Costs

Eligible employers that set up a Simplified Employee Pension (SEP), SIMPLE IRA, or qualified plan for employees may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of setting up the retirement plan. Ordinary and necessary costs include start-up and administration costs of the plan as well as costs incurred to educate employees about the plan. For this credit, taxpayers are not able to deduct the start-up costs and also claim the credit for the same expenses, so no double-dipping!

About the Author: Nicole DeRosa CPA, MAcc is a senior tax manager with Wiss & Company, LLP. She can be reached at nderosa@wiss.com.

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