Small Business Tax Credits You May Be Able to Claim | hioscar Blog | Oscar
Small Business Tax Credits You May Be Able to Claim
Know the health insurance tax credits that are available to you.
Employee Health BenefitsTips for Small Businesses
4 min read
Share article
Our friends at Gusto have curated content for small businesses that are navigating challenges during the COVID-19 pandemic. We're bringing you some of their articles so you can stay informed.
If you want to save money on your business taxes, you first need to know which tax credits are available to you. Use this guide to quickly and accurately identify the small business tax credits that will keep more money in your pocket at tax time.
What is a tax credit? And is it the same as a deduction or exemption?
First thing’s first. You probably know that tax credits, exemptions, and deductions are all important when figuring out how much you owe in taxes. But what’s the difference between them all?
Tax credit: A tax credit is a dollar amount that can be subtracted from the amount you owe. In other words, if a tax credit is $400, that means you will pay $400 less in taxes.
Tax deductions and exemptions: On the other hand, deductions and exemptions only reduce your taxable income. (An exemption reduces your taxable income just like a deduction does, but has fewer restrictions to claiming it.)
In other words, if you have a deduction of $400, that does not mean you’ll be keeping that $400 in your pocket. It just means that you will save whatever money you owe in taxes on that $400.
While each of these tax breaks will help you reduce the amount you’ll owe for taxes, tax credits are often viewed as even better than deductions or exemptions. The great news is that as long as you are sure you qualify, you can use any and all of these tax breaks together. The more, the merrier.
2020 health insurance-related tax credits for small business owners
Credit for Small Employer Health Insurance Premiums
You’re a business owner with fewer than 25 full-time employees.
You pay an average wage of less than $51,600 per year.
You pay at least half of the amount for all of your employees’ health insurance premiums.
You’ve purchased your insurance plans through Small Business Health Options Marketplace.
How much the credit is worth: This credit is worth 50% of the amount you paid towards premiums (only 35% if your business is tax-exempt). Note: You can only qualify for this credit for two consecutive years.
What to ask your CPA: Since you can only receive this credit for two consecutive years, should you take this credit now or wait? This will depend upon your prospective growth and several other factors that your accountant can help you figure out.
The Premium Tax Credit
Who qualifies: The Premium Tax Credit (opens in new tab) is another individual credit that you do not want to overlook. You qualify for this credit if you purchased your own health insurance through the Health Insurance Marketplace. How much the credit is worth: The amount of the credit varies greatly depending upon your income and location. This document (opens in new tab) from the Center on Budget and Policy Priorities provides specific examples and answers to commonly asked questions.
Shouldn’t my accountant find these small business tax credits for me?
If you’re working with a small business accountant (opens in new tab), you may expect that they will save you every penny they can—and good accountants definitely go out of their way to do this.
However, even great accountants don’t always find every tax credit or deduction that you may be entitled to take. While your accountant may point out common tax credits and deductions that they know you qualify for, it’s a good idea for you to do some of the leg work and look through the most common ones on your own.
If you want to go a step further and scour all of the general business credits available, you can find that list of tax credits on the IRS website (opens in new tab). Chances are that you qualify for at least one of the commonly-used credits listed above, so that should certainly put a smile on your face this tax season.
Disclaimer: Oscar has no control over, and assumes no responsibility for, the reliability, quality, or accuracy, of this content.
