Countdown to April 15: Four tax credits that small businesses love

Robert Goldfield for the Portland Business Journal writes: Nothing brings a smile to the face of a taxpayer like the opportunity to use a tax credit.  Tax credits are complete offsets to owed taxes.  A deduction, in contrast, is subtracted from income, reducing taxable income by a percentage that depends on the taxpayer’s bracket.  So if you are in the 15 percent bracket, a $1,000 tax deduction decreases your tax bill by $150, but a $1,000 tax credit shrinks your tax bill by $1,000.

I asked Earl Pierce, a partner at Portland accounting firm Delap LLP, what tax credits are in favor. He said small businesses love the following four:

1. Start up or grow your retirement plan: As a self-employed small business owner, starting up your retirement plan can save tax dollars. You can grow your retirement plan assets by contributing pre-tax dollars as tax deductions that reduce your taxable income. Contributions made to retirement with pre-tax money defer the taxes on those dollars, and allow those dollars to be invested and grow tax deferred until the time you actually withdraw the money in retirement.

As the IRS explains, the credit for small employer-pension startup costs allows an offset up to $500 of plan administrative costs for the first three years of the plan. This takes away some of the sting of those costs to establish a retirement plan to be able to get those tax deductions for the retirement plan contributions.

2. Work opportunity: Providing jobs to certain groups of employees — for example veterans — may result in tax credits dependent on three factors: wages paid to the employee, number of hours worked, and the amount of time the individual was previously unemployed. The IRS provides more information about the select groups.

3. Increased research: If you’re growing or trying to grow your business specifically through research and development, you could be eligible for a tax credit. The R&D tax credit has been made available by Congress for nearly 28 years. The IRS grants tax credits for a variety of business research.

4. Health care coverage: As a small employer, if you cover at least 50 percent of single health care coverage and have 25 or fewer full-time employees earning an average of less than $50,000 in wages, you may be eligible for a tax credit. The IRS has more details.