11 Tax Credits for Businesses to Save Money
When you’re running a business, any money you can save is money you can invest back into the business. Reducing your taxes is a relatively easy way to save money. Too often, business owners approach taxes defensively, focusing on compliance instead of looking for opportunities to reduce their tax bill.
Tax credits are one of the most effective ways businesses can reduce their tax burden without cutting corners or taking unnecessary risks. They’re built into the tax code to encourage hiring, innovation, employee benefits, and long-term growth. Unfortunately, many business owners don’t know which tax credits they qualify for, or simply assume they don’t qualify at all.
In this guide, we explain what tax credits are, how they work, and give 11 examples of tax credits that your business may already qualify for.
Key Takeaways
- Tax credits are incentives that reduce your tax bill.
- Many tax credits apply more broadly than expected.
- Proper documentation and planning matter; they make credits easier to claim.
- Missed credits often mean missed opportunities to improve cash flow and reinvest in your business.
What are business tax credits?
Business tax credits are financial incentives built into the tax code that directly reduce the amount of tax a business owes.
Unlike deductions, which lower a business’ taxable income, tax credits lower a business’ actual tax bill. For example, if your business owes $50,000 in taxes and qualifies for a $10,000 tax credit, your tax bill drops to $40,000. The credit does not depend on your tax bracket or your marginal tax rate. Its value is fixed and immediate.
Tax credits exist because the government wants to incentivize certain business behaviors that support economic growth and social goals. For example, R&D tax credits encourage businesses to invest in innovation, while work opportunity tax credits encourage them to hire people who have faced challenges in getting hired. These credits are not rewards for clever tax planning, but instead are policy tools designed to influence real business decisions.
A Practical Tip From Our Team
It’s not your job as a business owner to stay on top of every tax credit that comes along. That’s what your tax professional is there for. But tax credits often depend on the nature of your business and how you operate day to day. That’s why it’s important to have conversations that go beyond the numbers, so your tax professional can fully consider how your business works and identify credits that apply to you.
– Scott Lee
Certified Public Accountant
Related: Best Tips for Businesses to Manage Their Finances
What’s the difference between a tax credit and a tax deduction?
Many business owners are far more familiar with deductions, which makes credits easy to misunderstand or undervalue.
A tax deduction reduces the income your business is taxed on. In other words, your tax rate stays the same, but it’s applied to a smaller amount of income. The actual savings depend on your tax rate.
A tax credit reduces your tax bill by the full amount of the credit. In other words, a $10,000 credit saves $10,000 in taxes.
Because of this, credits often have a much larger financial impact than deductions, even if they appear smaller at first glance.
Refundable vs. Non-Refundable Tax Credits
There are two types of tax credits that work in different ways.
Non-refundable credits can reduce your tax liability to zero, but cannot create a refund. In many cases, unused portions of non-refundable credits can be carried forward to future tax years. This means the credit is not necessarily lost, but its value depends on your ability to use it in later years.
Refundable credits, meanwhile, can reduce your tax bill below zero, resulting in a refund. If your business owes $10,000 in taxes and qualifies for a $15,000 refundable credit, the credit eliminates the $10,000 tax bill, and the remaining $5,000 is refunded to you.
Because refundable credits are not limited by current-year tax liability, they can provide cash flow benefits even in years when profits are lower. This makes them especially helpful for startups, growing businesses, or companies reinvesting heavily.
Refundable credits are less common, but when available, they can be significantly more impactful.
Related: 10 Effective Tax Reduction Strategies for Businesses
11 Business Credits to Consider
Many business owners assume tax credits only apply to large corporations or specialized industries. In reality, some of the most impactful credits apply to everyday business activities across a wide range of sectors.
Below are examples of tax credits your business may already be able to take advantage of. Along with an explanation of each credit, we’ve included a link to the accompanying form to file for each respective tax credit.
1. Work Opportunity Tax Credit
The Work Opportunity Tax Credit provides a tax incentive for employers who hire individuals from specific groups that have historically faced challenges entering the workforce, such as veterans and long-term unemployed workers.
By offsetting part of the cost associated with onboarding and training new hires, the credit encourages broader hiring efforts while helping businesses manage labor costs.
2. Credit for Small Employer Health Insurance Premiums
This small business tax relief reduces the financial burden for small businesses that offer health insurance to their employees. It lowers the effective cost of premiums to help employers provide meaningful benefits while maintaining predictable and manageable operating expenses.
3. Employer Credit for Paid Family and Medical Leave
Employers that choose to offer paid family and medical leave may benefit from this credit. It recognizes businesses that provide income continuity during qualifying medical or family-related absences, helping employees manage life events without stepping away from the workforce entirely.
4. R&D Tax Credit
The R&D tax credit applies to businesses that invest in improving products, services, processes, or internal systems. Eligible activities often include experimentation, testing, and problem-solving efforts, even when those efforts do not result in a finished or commercialized product. The credit helps offset the cost of innovation and encourages ongoing improvement.
5. Credit for Small Employer Pension Plan Startup Costs
This credit helps offset the startup and administrative costs associated with establishing a retirement plan, such as a 401(k) or SIMPLE IRA. It’s a small business tax relief that lowers the financial barrier for businesses that want to offer long-term savings options and remain competitive in attracting and retaining employees. Whether you’re launching a new venture or expanding an existing one, exploring each new business tax credit opportunity can improve your cash flow during critical growth phases.
6. Credit for Employer-Provided Child Care
Businesses that provide child care facilities or contribute toward employee child care expenses may qualify for this credit. It reflects the growing recognition that access to reliable child care plays a critical role in workforce stability and employee retention.
7. New Markets Credit
The New Markets Tax Credit encourages private investment in economically distressed communities. Businesses participate by financing or developing projects that generate jobs, expand access to goods and services, and contribute to long-term community development.
8. FICA Tip Credit
This credit allows employers to recover a portion of the Social Security and Medicare taxes paid on employee tips. It helps offset payroll tax costs in industries where tipping is a primary component of employee compensation, such as restaurants and hospitality businesses.
9. Disabled Access Credit
Small businesses may use this credit to offset expenses related to improving accessibility for individuals with disabilities. Eligible improvements can include building modifications, assistive technology, or certain digital accessibility enhancements, making spaces and services more inclusive while managing compliance costs.
10. Clean Vehicle Credits
Clean vehicle credits provide tax incentives for businesses that purchase qualifying electric or alternative-fuel vehicles. By reducing the upfront cost of cleaner transportation, these credits encourage businesses to modernize fleets while lowering environmental impact.
11. Credit for Federal Tax Paid on Fuels
This credit allows businesses to reclaim federal fuel taxes paid on fuel used for non-taxable purposes, such as off-highway equipment, agriculture, or certain commercial uses. It helps prevent overpayment when fuel is not used for standard taxable transportation.
A Note on Eligibility
The tax credits listed above are examples, not guarantees. Most credits come with specific qualifications and exclusions, and eligibility can vary based on how a business is structured and operates. Even if another business in your industry qualified for a credit, that doesn’t automatically mean it will apply to you. Each credit should be evaluated individually to determine whether it truly fits your business.
FAQs About Tax Credits
What’s the difference between a tax credit and a tax deduction?
A tax deduction reduces the income your business is taxed on, which lowers your tax bill indirectly based on your tax rate. A tax credit reduces your tax bill directly.
Are tax credits only for large businesses or corporations?
No. Many tax credits are specifically designed for small and mid-sized businesses. Credits related to hiring, employee benefits, retirement plans, accessibility improvements, and innovation often apply to everyday business activities. In fact, understanding how to leverage a new business tax credit can be particularly valuable for startups and small businesses looking to maximize limited resources.
What happens if my business qualifies for a credit but doesn’t owe much in taxes?
That depends on whether the credit is refundable or non-refundable. Some credits can generate refunds, while others may be carried forward and used in future tax years when your tax liability is higher.
Can I claim tax credits retroactively?
In some cases, yes. Certain credits allow amended returns or carrybacks. However, retroactive claims can be more complex, which is why proactive planning is often more effective.
Should tax credits be part of my long-term business strategy?
Yes. When considered alongside hiring plans, investments, and growth goals, tax credits can improve cash flow and support smarter decision-making over time. Staying informed about each new business tax credit that becomes available ensures you’re not leaving money on the table as legislation evolves.
Why do tax credits get missed so often?
Most missed credits aren’t intentional. They’re usually the result of assumptions (“we wouldn’t qualify”), lack of documentation, or focusing solely on year-end tax filing instead of year-round planning.
What’s one tax credit question business owners should ask every year?
Business owners should ask whether there are any new federal or state tax credits available for the current year. Credits change frequently, and asking this question annually helps ensure new opportunities aren’t missed.
Are there situations when my business shouldn’t pursue a tax credit, even if it technically qualifies?
Yes, in some cases. Claiming a large number or high dollar amount of tax credits can increase the likelihood of additional review by tax authorities. If your business has previously taken aggressive tax positions, that review may extend beyond the credit itself and lead to a deeper examination. This is why tax credits should always be evaluated strategically, with proper documentation and a clear understanding of potential risks.
Keeping More of What Your Business Earns
The most important step with tax credits is understanding which ones may apply to your business. This isn’t about gaming the system or chasing loopholes. Tax credits are intentional incentives, and many businesses miss them simply because they don’t know they qualify.
While some credits sound narrow or highly technical, eligibility is often broader than expected. PleaseThe key is knowing where to look, asking the right questions, and maintaining the documentation needed to claim credits correctly. Without that preparation, valuable opportunities can easily be left on the table.
At Chatterton & Associates, we help business owners approach tax planning with company growth in mind. Our goal is to help you make informed decisions today that support your business well into the future. Schedule a consultation today to learn how we can help you and your business thrive.
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