Businesses need a few important things to succeed: dedicated employees, a solid product or service, and cash. Cash is king. Colorado business owners can keep more cash in the business by finding and taking advantage of tax credits.
Of course, like most tax issues, the tax credit topic tends to make business owners a little anxious, and not without good reason; you should approach tax credits with care and in consultation with legal and accounting professionals to avoid sticky situations.
What Is a Business Tax Credit?
Tax credits offer dollar-for-dollar tax bill reductions, directly reducing your tax liability and keeping more money within the business. They are more valuable than tax deductions, which decrease the amount of income subject to tax.
The IRS offers tax credits to encourage certain business decisions. For example, tax credits tend to be available to companies when they engage in investments or capital improvements that are favored by public policy officials.
Dozens of tax credits exist, so they can be easy to miss, which may cause you to miss out on big savings. That’s another reason to work with qualified professionals for all things business tax-related.
Tax Credits Colorado Business Owners Should Know About
Below, you’ll find a short list of some of the most beneficial tax credits your business might be able to utilize. A word of caution first, though: many tax credits are limited by factors like the company’s revenue, number of employees, or both. There are also lists of exclusions and restrictions for some credits. You should always talk to a tax professional before you count on being able to use a particular credit.
1. General Business Tax Credit
This catchall tax credit includes a group of about 25 different credits that all get reported on Form 3800. Most of the credits discussed below fall under this general business tax credit. You fill out one IRS form for each credit and then add them on Form 3800 to arrive at your total general business tax credit.
2. Credit for Small Employer Health Insurance Premiums
This tax credit reimburses small businesses for up to 50% of the cost of employer-paid health insurance premiums. To qualify, your company must:
- Have fewer than 25 full-time employees
- Have an average employee salary of $56,000 a year or less
- Have paid at least 50% of the premium costs for employee-only coverage
- Offer a qualifying health plan to employees through the Small Business Health Options Program Marketplace
As with all things healthcare, several caveats can be easily overlooked, making calculating this tax credit tricky. You can try using the IRS healthcare tax calculator to estimate your credit amount. However, be sure to leave the real calculations to your tax professional.
3. Alternative Vehicle and Fuel Tax Credits
Businesses involved in producing alternative fuels like biodiesel, alcohol, or renewable diesel could qualify for various credits. Notably, this credit is for companies that produce these fuels, not for companies whose vehicles use the fuels.
Companies that use alternative fuel vehicles do get their own tax credits. The IRS doesn’t publish a list of specific vehicles that qualify; instead, you can claim the credit if the vehicle manufacturer certifies that the vehicle qualifies for the credit. For example, you could get a credit for purchasing certain electric cars specified by the IRS.
4. Research and Development Tax Credit
Some types of research conducted by your business can qualify for a tax credit that covers up to 20% of resulting expenses. Calculating this credit is very complex but can lead to substantial savings. Qualifying research activities can include:
- Prototyping or model development;
- Developing or applying for patents;
- Certification testing;
- Developing new technology;
- Environmental testing;
- Developing or improving software technologies; and
- Building or improving manufacturing facilities.
Additional Credits to Ask Your Advisors About
With dozens of potential tax credits out there, you’ll want to consult with your legal and tax advisors to be sure you know which credits you qualify for. Among the long list of possibilities we haven’t covered here are credits for:
- Giving work opportunities to unemployed veterans, ex-felons, government assistance recipients, and others who have barriers to getting a job;
- Hiring someone who lives and works in a low-income area;
- Investing in real estate projects in low-income communities;
- Investing in reforestation, building rehab projects, and alternative energy;
- Paying for your employees’ childcare; and
- Making your business more accessible for disabled people.
Get Professional Business Tax Credit Guidance
At Hackstaff Snow Atkinson & Griess, LLC, our Colorado business and taxation attorneys help companies identify and use tax credits responsibly. To discuss your situation, call our Greenwood Village office at 303-534-4317 or send us a message.
