The success of American businesses has been nothing short of a miracle. US firms account for 24.4% of companies on the Fortune 500 list, with half listed on Fortune’s Top 10 and over 30.5% of the Forbes 2000 list.
Ever wondered what the ‘secret sauce’ is behind the complete dominance of US corporations on the global stage?
A vast credit for this monumental triumph goes to the list of tax credits offered by the US government to foster research & innovation, mitigate the impact of unforeseen situations, encourage social responsibility, empower targeted communities, and conserve energy. In this blog, we’ll explore four noteworthy tax credits that multi-entity businesses can leverage to optimize their financial performance.
1. Your business doesn’t need a laboratory to qualify for the R&D Tax Credit.
The Research and Development (R&D) tax credit was established to encourage American companies to invest in research & innovation. This credit provides a significant tax offset for multi-entity businesses in qualifying R&D activities.
What you need to know:
- Businesses small and large from many industries can benefit from the R&D Tax Credit.
- The credit can be applied retroactively for up to 3 to 4 years, providing a significant cash flow opportunity.
- Businesses developing new products, processes, or software should consider this credit.
- Many CPAs overlook this credit. Seek out a knowledgeable advisor or company that specializes in the R&D tax credit to see if your company qualifies.
- Recent tax law changes made some portions of the credit permanent.
2. Employee Retention Credit (ERC)
Employee Retention Credit (ERC) was part of the COVID-19 economic stimulus packages. Also referred to as the Employee Retention Tax Credit (ERTC), it gives qualifying businesses credit for retaining employees during 2020 and 2021.
What you need to know:
- The credit is refundable for eligible businesses and tax-exempt organizations.
- Businesses subject to government-ordered shutdowns or experiencing a decline in gross revenue during 2020 or 2021 may be eligible.
- Businesses that experienced a disruption in their supply chain may also qualify.
- Eligible businesses can recover the credit by filing amended payroll tax returns (Form 941-X).
💡Tip: If you haven’t looked at the ERC, don’t wait. ERC Claims for 2020 must be filed by April 15, 2024. Claims for 2021 aren’t due until April 15, 2025.
3. Work Opportunity Tax Credit (WOTC)
The US government introduced the Work Opportunity Tax Credit (WOTC) to address economic disparities and encourage American businesses to hire individuals from targeted communities or groups facing significant employment barriers. Businesses often overlook the WOTC when hiring new employees. While there is some additional work to receive the credit, there is generally a significant return on investment for businesses willing to understand and obtain this credit.
What you need to know:
- It is important to have an effective screening process for WOTC.
- Many Payroll Providers and HR Software companies offer this service.
- The WOTC can be as much as $2,000 per eligible employee.
- Veterans, Government assistance recipients, and Ex-felons are among the list of target groups. Find the complete list here.
- The WOTC is authorized through December 2025, but Congress has historically extended this credit.
4. Get credit for helping employees save for retirement
The Setting Every Community Up for Retirement Enhancement Act, commonly called, the SECURE 2.0 Act, introduces a substantial startup tax credit to assist small businesses in establishing retirement plans. The SECURE 2.0 Act extends the existing startup tax credit regarding employer plan costs. Small businesses initiating a plan may benefit significantly from both credits.
What you need to know:
- The credit is based on employer retirement plan contributions for employees.
- Businesses with less than 100 employees earning $5,000 or more monthly qualify.
- The company cannot have had a similar plan in the last 3 years.
- Talk to your CPA, tax advisor, and financial planner if you are considering offering a retirement plan to employees.
Having trouble determining which tax credit your business is eligible for?
Docyt AI aids multi-entity businesses in claiming tax credits for which they are eligible. To learn more, Schedule a Free Consultation Today or Contact Sales at: (877) 400-1088.
