Tax Credits and Deductions for Small Business Owners

Tax Credits and Deductions for Small Business Owners

No matter the nature of your business, chances are it involves spending money on marketing materials, office supplies and other expenses which qualify as tax deductions. But have you considered tax credits?

Tax credits offer real dollar-for-dollar savings, so make sure that all eligible tax credits and deductions are claimed for. For optimal tax savings, claim every eligible credit and deduction you are eligible for.


Depreciation is an invaluable small business tax deduction that can save you thousands every year. Depreciation allows you to reduce the value of an asset over time, such as a computer that depreciates due to age and wear and tear. Depreciation expenses should be included on your annual statement of expenses using IRS form 4562 for submission as an income tax deduction. Depreciation applies both tangible assets like equipment and machinery as well as intangible ones like intellectual property.

Section 179 depreciation, an attractive small business tax deduction, allows you to write off the full cost of qualifying assets purchased for use in your business when purchased, providing entrepreneurs with an incentive to spend money and expand their businesses. It can be used on everything from new computers and equipment purchases for work use to cars purchased for personal use by small business owners. TCJA also provided small business owners with bonus depreciation as another powerful tool.

Health Insurance

Health insurance is an invaluable benefit to employees and an expensive expense for small businesses alike, making understanding how the Affordable Care Act (ACA) impacts both parties essential in saving money on health coverage through tax credits for employees.

To qualify for a health insurance tax credit, your business must employ no more than 25 full-time equivalent employees and cover at least half of each employee’s premium costs through a Small Business Health Options Program (SHOP) plan.

Tax credits reduce your tax bill dollar for dollar, while deductions reduce only taxable income. As such, credits are more beneficial for small business owners than deductions. By making use of complementary resources and staying informed on legislative updates, you can maximize the potential of health insurance tax credits to support employees financially well being.

Startup Expenses

Starting a business can be fraught with complications, and one such challenge lies in managing financials. From taxes to insurance, your spreadsheets could become an unwieldy mess of calculations. To reduce confusion and simplify bookkeeping, Bench offers bookkeeping services that import transactions from banks, credit cards and merchant processors into its platform and categorize each item for possible tax deductions.

Startup expenses occur during the planning and development phases of a business, including market research costs and legal fees. They are tax deductible in the year they occur or they can be amortized over several years.

Software can be an expensive expense for small businesses, and writing off its cost can help lower your tax bill. From payroll services to point-of-sale systems, software can save on taxes.

Work Opportunity Tax Credit

This credit, commonly referred to as the Work Opportunity Tax Credit or WOTC, aims to encourage employers to invest in American job seekers who have encountered significant barriers to employment. It offsets any federal income tax liability dollar-for-dollar and may be carried forward up to 20 years.

To claim this credit, businesses must first secure certification that their new hire belongs to one of several qualifying groups provided by the IRS – ex-felons, workers from empowerment zones and others are among them.

Navigating the complexity of this program and its paperwork can be difficult for small businesses without dedicated tax planning and compliance resources. By understanding its fundamentals and following best practices, business owners can ensure they’re reaping all available tax benefits from the WOTC program. For more information regarding other tax credits or deductions available to them, contact us now for a complimentary consultation with one of our tax professionals.