Coronavirus Operations Memo: Click Here | Magnus documents: Form ADV | Form CRS | Privacy Policy

11 Finance Experts Share Tax Credits And Processes Every Entrepreneur Should Know About

- September 9, 2022

View on Forbes.com

For an entrepreneur, rising sales numbers and a growing client base are usually viewed as the primary signs of their business’ financial health. However, it’s also essential to have at least a basic understanding of the tax code—and not only what you’re responsible for paying.

Whether an entrepreneur is managing their own books or working with a tax specialist, it’s also wise to be up to speed on available tax credits and adjustments and the processes involved with leveraging them. Below, 11 members of Forbes Finance Council share valuable tax credits and important processes they believe every business owner should know about.

1. Research And Development Credit

The Research and Development Credit is a significant tax credit that can help both mature and startup companies in a vast array of industries. Yes, software developers and biotech companies will easily qualify, but many other industries, including construction, manufacturing and retail, can potentially have qualifying expenses. There’s also a refundable payroll tax option for startups. – Shaune Scutellaro, CohnReznick LLP

2. Section 280A

Section 280A allows homeowners to rent out their homes for up to 14 days per year without the need to report the rental income on their individual tax returns. That means a business owner can rent their personal residence to their business for a company retreat. The cost of the retreat, including the rent, is a deduction for their business, and the income is tax-free for the homeowner. – Marthin De Beer, BrightPlan

3. Employee Retention Credit

Small to medium-sized businesses harmed by Covid-19 may be eligible for the Employee Retention Credit. The ERC is a dollar-for-dollar credit on wages paid. The 2021 ERC is available up to three years from filing the first three quarters of 2021 payroll returns. Find a firm that will do the ERC on a time-incurred rather than a contingent-fee basis to ensure the ERC has maximum benefit for the employer. – Matthew Goldston, PKF Texas

4. Work Opportunity Credit; Disabled Access Credit

Many tax credits are available to small businesses that are often overlooked and underutilized. The Work Opportunity Credit provides 40% of the first $6,000 in first-year wages for hires from specific demographic groups. The Disabled Access Credit is available for businesses earning $1 million or less and with 30 or fewer full-time employees. It covers up to 50% of access expenditures, with a maximum of $5,000 in a single year. Research is key to matching your business needs. – Cynthia Hemingway, Fourlane, Inc.

5. Credit For Small-Business Health Insurance Premiums

There are several tax credits you can utilize to offset your liability; one you should know about is the Credit for Small-Business Health Insurance Premiums. This credit is for 50% of your employer-paid health premiums. As any entrepreneur can tell you, running a business becomes extremely costly when you start hiring; this credit can be a great way to reduce some of that cost while you invest in your team. – Patrick Rood, Rood Financial Services

6. SECURE Act

The SECURE Act was signed into law in 2019. It made significant changes to retirement plans, including the creation of enhanced tax credits for small businesses starting a new 401(k) plan or adding automatic enrollment to any 401(k) plan. These incentives are designed to encourage employers to set up employer-sponsored pension plans for employees and to increase participation. – Michael S. Schwartz, Magnus Financial Group LLC

7. Empowerment Zone Employment Credit

The Empowerment Zone Employment Credit offers business owners up to $3,000 per employee if the business operates within an empowerment zone and employs those who also live within the zone. It should be noted, however, that qualified zone wages can’t include wages that are being considered for the Work Opportunity Tax Credit. If you operate in an empowerment zone, this is a great tax credit. – Justin Goodbread, WealthSource Partners, LLC

8. Section 179 Deduction

The Section 179 deduction, previously known as the “SUV tax loophole” or the “Hummer Deduction,” is the most important tax credit for businesses to know about. This tax credit, sometimes referred to as a deduction, is for business equipment. You can deduct the full purchase price of qualifying equipment and software. – Jared Weitz, United Capital Source Inc.

9. Retirement Plans Startup Costs Tax Credit

A little-known credit available to small businesses is the Retirement Plans Startup Costs Tax Credit, which is available to businesses with 100 or fewer employees. The credit can generate tax savings of up to $5,000 per year for three years to help offset the cost of starting a new retirement plan for employees. – Jeff Call, Bennett Thrasher

10. General Business Tax Credit

The General Business Tax Credit gives small-business owners numerous options for investing in initiatives that help them, their employees and their business. I also like the simplicity of it; expenditures such as buying electric vehicles, entering new markets and retaining employees can be claimed on a single form. – Todd Sixt, Strait & Sound Wealth Management LLC

11. Granting Employees Shares And Options

The most important tax concept for founders to understand is how to most efficiently grant shares or options to their employees. Exercising options are often a tax nightmare for employees. Plans need to be set up correctly from the start. Knowing tax credits is important, but the tax implications of not setting your employee option pool up correctly will likely vastly outweigh any tax credit. – Rebecca Mitchem, Neotribe Ventures

DISCLAIMER

Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any macroeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.

This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.

Additionally, please be aware that past performance is not a guide to the future performance of any manager or strategy, and that the performance results and historical information provided displayed herein may have been adversely or favorably impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be inferred that these results are indicative of the future performance of any strategy, index, fund, manager or group of managers. Index benchmarks contained in this report are provided so that performance can be compared with the performance of well-known and widely recognized indices. Index results assume the re-investment of all dividends and interest.

The information provided is not intended to be, and should not be construed as, investment, legal or tax advice nor should such information contained herein be construed as a recommendation or advice to purchase or sell any security, investment, or portfolio allocation. An investor should consult with their financial advisor to determine the appropriate investment strategies and investment vehicles. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon and risk tolerance. This presentation makes no implied or express recommendations concerning the way any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s specific investment objectives.

Investment advisory services offered through Magnus; securities offered through third party custodial relationships. More information about Magnus can be found on its Form ADV at www.adviserinfo.sec.gov.

TERMS OF USE

This report is intended solely for the use of its recipient. There is a fee associated with the access to this report and the information and materials presented herein. Re-distribution or republication of this report and its contents are prohibited. Expert use is implied.

DEFINITIONS

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.