We often overlook excellent tax-saving options because we are unaware of them or struggle to keep up with ever-changing tax laws. In this blog post, we will shed light on some often-overlooked tax credits, deductions, and exemptions that can help small businesses in maximizing tax savings.
1. Self-Employed Health Insurance Deduction:
Are you aware that as a self-employed individual, you may be eligible for a deduction on your health insurance premiums? This includes coverage for dental, medical, or long-term care for your family. The self-employed health insurance deduction can significantly lower your tax bill.
To qualify, your business must have a net profit, which is the gross income minus deductions. Even if you don’t have a net profit, you can still claim your premiums as an itemized deduction on your Form 1040 federal tax return, Schedule A.
Moreover, if you are a partner or own at least 2% of an S-Corporation, you can also take advantage of this deduction by filling out Schedule 1 of your Form 1040 on line 16.
2. Disaster Loss Deductions:
Did you know that if your property suffers damage from natural catastrophes, the IRS provides some relief through disaster loss deductions? You can deduct the portion of the loss not covered by insurance or other reimbursements. This deduction applies to losses incurred in areas affected by major disasters such as wildfires, hurricanes, and flooding. Here’s how you can claim the disaster loss deduction on your tax return:
– Claim the deduction in the taxable year when the disaster occurred or the year immediately before.
– E-file or submit a paper return with the designated disaster code for California if filing electronically.
– If filing a paper return, write the disaster name and year at the top using blue or black ink.
– Include a written statement specifying the date and location of the disaster.
– Attach copies of federal forms and schedules supporting your deduction along with the return.
– Additional California forms may be required depending on your situation. For detailed information, refer to FTB Pub 1034 for claiming a state tax deduction for disaster losses.
3. Research and Development (R&D) Tax Credit:
The R&D tax credit is designed to support businesses investing in qualified research and development activities, fostering innovation and growth as defined in Internal Revenue Code section 41.
The R&D tax credit allows you to deduct an extra 86% of your qualifying costs from your yearly profit, in addition to the normal 100% deduction, resulting in a total deduction of 186%. If you have claimed relief and incurred a loss, you can also claim a payable tax credit worth up to 10% of the surrenderable loss.
However, to be eligible for SME R&D tax relief, certain criteria must be met. Your company should have fewer than 500 staff and a turnover under 100 million euros or a balance sheet total under 86 million euros.
4. Work Opportunity Tax Credit (WOTC):
The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire job seekers from targeted groups that have faced consistent barriers to employment.
According to recent data released by the U.S. Department of Labor, the Work Opportunity Tax Credits issued across the United States have significantly increased by almost 23.45% compared to previous years.
To claim the tax credit, complete an application and obtain certification verifying that the new hire belongs to one of the targeted groups. Once certified, you can apply the WOTC as a general business credit against your income taxes. For tax-exempt employers, the WOTC can be utilized to offset payroll taxes.
Navigating the complexities of the tax code can be overwhelming, but familiarizing yourself with lesser-known tax laws and breaks can lead to substantial financial benefits for small businesses. If you have any questions about tax law and breaks in California, The Law Office of Pietro Canestrelli is here to provide answers and assist you with your tax controversy and business law matters.