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The Internal Revenue Service today urged business taxpayers to begin planning now to take advantage of tax-saving opportunities and get ready for reporting changes that take effect in 2023.
There are a variety of small business tax credits that can be taken advantage of so continue reading!
During National Small Business Week, April 30 to May 6, the IRS is joining the Small Business Administration and others in both the public and private sector to celebrate the hard work, ingenuity and dedication of America’s small businesses and their contributions to the economy.
With next year’s filing deadline nearly a year away, entrepreneurs still have time to identify possible tax benefits, take action to qualify for them and then claim them when they file in 2024. They also have time to plan for reporting changes and even claim overlooked tax benefits from the recent past.
Cutting energy costs for small businesses
The Inflation Reduction Act (IRA), enacted last summer, includes provisions that can save small business owners money on energy costs. For example:
- Small businesses can receive a tax credit covering 30% of the cost of switching over to low-cost solar power, lowering operating costs and protecting against volatile energy prices.
- Small business building owners can receive a tax credit up to $5 per square foot to support energy efficiency improvements that deliver lower utility bills.
- Through the Clean Commercial Vehicle Credit, small businesses that use vehicles such as trucks and vans can benefit from tax credits up to 30% of purchase costs for clean commercial vehicles, like electric and fuel cell models that meet applicable requirements. There is no limit on the number of Clean Commercial Vehicle credits a business can claim.
These credits are nonrefundable, so businesses can’t get back more on the credit than they owe in taxes.
Employee Retention Credit: Claim it if eligible but avoid ERC scams
Eligible employers who overlooked the Employee Retention Credit (ERC) when they filed payroll tax returns for 2020 and 2021 can still claim it by filing an amended federal payroll tax return.
At the same time, the IRS has warned businesses not to fall victim to one of the many ERC-related scams being promoted online, in social media, on the radio and even phone calls and emails. Anyone who improperly claims the ERC has to pay it back, possibly with penalties and interest, so it’s important to avoid getting scammed.
Among other things, scammers misrepresent many features of the ERC and in some cases are merely using the credit as a ploy to steal the taxpayer’s identity or take a cut of the taxpayer’s improperly claimed credit. Eligible employers who need help claiming the credit should work with a trusted tax professional, not one of these scammers. ERC scams are so widespread this year that the IRS added them to its annual Dirty Dozen list of tax scams.
The ERC is designed to help employers who kept paying their employees while shut down during the pandemic or who suffered a significant decline in gross receipts during the eligibility period. The ERC is a payroll tax credit, not an income tax credit, and it was available only during 2020 and 2021.
Most eligible employers who overlooked the credit can still claim it by filing Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, available on IRS.gov. Form 941-X filers and businesses that file other types of returns can visit IRS.gov/ERC for details, forms and instructions.
Educational assistance programs can be used to pay student loans
Employers who have educational assistance programs can use them to help pay student loan obligations for their employees.
Though educational assistance programs have been available for many years, the option to use them to pay student loans has been available only for payments made after March 27, 2020, and, under current law, will continue to be available until Dec. 31, 2025.
Traditionally, educational assistance programs have been used to pay for books, equipment, supplies, fees, tuition and other education expenses for the employee. These programs can now also be used to pay principal and interest on an employee’s qualified education loans. Payments made directly to the lender, as well as those made to the employee, qualify.
By law, tax-free benefits under an educational assistance program are limited to $5,250 per employee per year. Normally, assistance provided above that level is taxable as wages.
Employers who don’t have an educational assistance program may want to consider setting one up. In a tight labor market, worthwhile fringe benefits such as educational assistance programs can help employers attract and retain good workers.
These programs must be in writing and cannot discriminate in favor of highly compensated employees. For information on other requirements, see Publication 15-B, Employer’s Tax Guide to Fringe Benefits. For details on what qualifies as a student loan, see Chapter 10 in Publication 970, Tax Benefits for Education.
More people will receive 1099-Ks
Starting in 2023, businesses and other taxpayers who receive more than $600 in income from third-party settlement organizations, including popular payment apps, may receive Forms 1099-K, Payment Card and Third Party Network Transactions. Typically, they’ll receive these reporting forms during January 2024.
The $600 reporting threshold is lower than it’s been in the past. For that reason, some people and businesses may receive a Form 1099-K that didn’t receive one in previous years.
There are no changes to what counts as income or how tax is calculated. For business taxpayers, most income is taxable, even if it’s not reported to them on a 1099 or another form issued by a third party.
The 1099-K reports various business transactions, including income from:
- A business the taxpayer owns.
- Activities in the gig economy.
- The sale of personal items and assets.
Good recordkeeping is key. For more information, visit the Understanding Your Form 1099-K page on IRS.gov.
Other tax benefits
From business start-up expenses and the home office deduction to the qualified business income deduction and the health-insurance deduction for self-employed individuals, there are a variety of tax benefits that may be available to entrepreneurs and other business owners.
For details on these and other tax benefits see Publication 535, Business Expenses. Details on another major expense for most businesses, depreciation of buildings, equipment and other assets can be found in Publication 946, How to Depreciate Property.
Yet another worthwhile resource for any small business is the agency’s Publication 334, Tax Guide for Small Business. All these publications are available on IRS.gov.
For more information featuring useful tax-related tools and resources to help small business owners, employers and self-employed individuals succeed visit the IRS.gov Small Business Week webpage.
Small Business Tax Credits 2023
Your general business credit for the year consists of your carryforward of business credits from prior years plus the total of your current year business credits. In addition, your general business credit for the current year may be increased later by the carryback of business credits from later years. You subtract this credit directly from your tax.
Most of the following credits are part of the general business credit. The form you use to figure each credit is shown below.
- Form 3800, General Business Credit
- Form 3468, Investment Credit
This consists of the sum of the rehabilitation, energy, and reforestation credits.
- Form 5735, American Samoa Economic Development Credit
- Form 5884, Work Opportunity Credit
- Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit
- Form 6765, Credit for Increasing Research Activities
- Form 8586, Low-Income Housing Credit
- Form 8820, Orphan Drug Credit
- Form 8826, Disabled Access Credit
- Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit
- Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit
- Form 8844, Empowerment Zone Employment CreditNote: The Renewal Community Employment Credit (Carry forward only) credit was previously on Form 8844, Empowerment Zone Employment Credit; however, the credit has expired for calendar years after 2009. The Form 8844 with instructions for 2009 contains the details on the credit. The carryforward is claimed on Form 3800, General Business Credit.
- Form 8845, Indian Employment Credit
- Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips
- Form 8864, Biodiesel and Renewable Diesel Fuels Credit
- Form 8874, New Markets Credit
- Form 8881, Credit for Small Employer Pension Plan Startup Costs
- Form 8882, Credit for Employer-Provided Childcare Facilities and Services
- Form 8896, Low Sulfur Diesel Fuel Production Credit
- Form 8900, Qualified Railroad Track Maintenance Credit
- Form 8906, Distilled Spirits Credit
- Form 8908, Energy Efficient Home Credit
- Form 8910, Alternative Motor Vehicle Credit
- Form 8911, Alternative Fuel Vehicle Refueling Property Credit
- Form 8923, Mine Rescue Team Training Credit
- Form 8932, Credit for Employer Differential Wage Payments
- Form 8933, Carbon Dioxide Sequestration Credit
- Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit
- Form 8941, Credit for Small Employer Health Insurance Premiums
- Form 8994, Employer Credit for Paid Family and Medical Leave
How to Claim the Credit
To claim a general business credit, you will first have to get the forms you need to claim your current year business credits.
In addition to the credit form, in most cases you may also need to file Form 3800.
If you file a Form 1040 or 1040-SR Schedule C, you may be eligible to claim the Earned Income Tax Credit (EITC). To learn more about EITC, refer to It’s easier than ever to find out if you qualify for EITC, or use the EITC Assistant to find out if you are eligible.