Leverage Tax Credits to Fuel Business Growth in 2024

Tax credits are one of the most powerful tools for reducing your tax bill and boosting your business’s bottom line. Unlike deductions that simply reduce your taxable income, tax credits directly reduce the amount of tax you owe. This means that a $1,000 tax credit saves you $1,000 on your tax bill—dollar for dollar.

With new opportunities available in 2024, especially in areas like energy efficiency and research, now is the perfect time to understand how tax credits work and how they can help you reinvest in your business for long-term growth. This guide will walk you through the key tax credits that can support your business during the last quarter of 2024.

What Are Tax Credits?

Tax credits are incentives provided by the federal and state governments to encourage businesses to make certain types of investments, create jobs, and contribute to economic growth. These credits are a direct reduction of the taxes you owe, making them far more valuable than deductions, which only lower your taxable income.

There are two main types of tax credits:

1. Nonrefundable Tax Credits: These can reduce your tax liability to zero but won’t result in a refund if they exceed your tax liability. For example, if you owe $5,000 in taxes and have a $6,000 nonrefundable tax credit, you’ll only reduce your tax to zero but won’t receive the remaining $1,000 back.

2. Refundable Tax Credits: These not only reduce your tax liability to zero but can result in a refund if the credit exceeds your liability. Using the same scenario above, a refundable tax credit would not only reduce your tax to zero but would also provide you with a $1,000 refund.

Understanding the different types of credits and how they apply to your business is key to maximizing your savings. Let’s explore some of the most beneficial federal and state-specific tax credits available to small business owners in 2024.

Common Federal Tax Credits for Small Businesses

Several federal tax credits are designed specifically to encourage small businesses to invest in growth, sustainability, and innovation. Here are some of the most valuable credits available in 2024:

1. Research and Development (R&D) Tax Credit

The R&D Tax Credit rewards companies that invest in innovation and technological development. You can qualify for this credit if your business is involved in activities like creating new products, developing prototypes, or improving existing processes.

• Who Can Claim It? Businesses of any size in any industry that engage in research activities.

• How Much Can You Claim? Typically, 6-14% of eligible R&D costs, including wages, supplies, and contract research expenses.

2. Work Opportunity Tax Credit (WOTC)

The WOTC is a federal credit available to businesses that hire employees from certain targeted groups, including veterans, long-term unemployed, and individuals on public assistance.

• Who Can Claim It? Businesses that hire individuals from targeted categories.

• How Much Can You Claim? Up to $9,600 per employee, depending on the employee category and hours worked.

3. Employee Retention Credit (ERC)

The ERC was created to support businesses that retained employees during the COVID-19 pandemic. While this credit has specific qualifications and restrictions, it’s still relevant for those eligible in 2024.

• Who Can Claim It? Businesses that experienced a significant decline in revenue or were affected by government-ordered shutdowns in 2020 and 2021.

• How Much Can You Claim? Up to $7,000 per employee, per quarter for qualified wages paid during eligibility periods.

4. Disabled Access Credit

Businesses that make their facilities more accessible to disabled employees and customers can claim the Disabled Access Credit. This credit covers expenses for items like ramps, accessible doorways, and modified workstations.

• Who Can Claim It? Businesses with gross receipts of less than $1 million or fewer than 30 full-time employees.

• How Much Can You Claim? 50% of eligible expenditures, up to a maximum of $5,000.

These credits offer substantial financial benefits, making it easier to invest in your business, hire new talent, and improve your offerings—all while lowering your tax liability.

State-Specific Credits You Should Know

In addition to federal credits, many states offer their own tax credits to support local businesses. These credits can vary widely depending on your state’s priorities and economic development goals.

Here are some common types of state-specific credits to be aware of:

1. Job Creation Credits: Many states provide credits for creating new jobs within their borders. These credits are often based on the number of jobs created and the wages paid to new employees.

2. Investment Tax Credits: States may offer credits for investing in local businesses or specific industries, such as manufacturing or technology.

3. Renewable Energy Credits: Similar to federal energy credits, states often provide additional incentives for installing renewable energy systems like solar panels or wind turbines.

4. Training and Education Credits: States may offer credits to businesses that invest in employee training and professional development programs.

Be sure to check with your state’s Department of Revenue or consult with a tax professional to see what credits are available and how they can be applied to your business.

How to Claim Energy-Efficient and Research-Based Credits

Energy-efficient upgrades and investments in research and development (R&D) can qualify your business for substantial tax credits. Here’s how you can claim these credits:

Energy-Efficient Tax Credits

If you’ve made improvements to your business property that reduce energy consumption, such as installing energy-efficient HVAC systems, lighting, or solar panels, you may be eligible for credits like the Energy-Efficient Commercial Buildings Deduction or the Business Energy Investment Tax Credit.

• Steps to Claim Energy-Efficient Credits:

1. Gather documentation for all energy-efficient purchases and improvements.

2. Obtain certification from the equipment or property provider stating that the upgrades meet the required energy standards.

3. Complete the necessary IRS forms, such as Form 3468 for investment credits, and include them with your tax return.

Research-Based Tax Credits

The R&D Tax Credit is a highly beneficial credit for businesses that innovate and experiment with new technologies. To claim this credit:

• Steps to Claim R&D Credits:Steps to Claim R&D Credits:

  1. Identify all qualified research activities, such as product development, engineering improvements, or software enhancements.

  2. Calculate eligible expenses, including wages, supplies, and research-related costs.

  3. Complete IRS Form 6765 to calculate and report your R&D credits.

Claiming these credits can be complex, so working with a tax professional who specializes in these areas is highly recommended.

Maximizing Your Growth Using Tax Credits

Tax credits provide an incredible opportunity to reduce your tax bill and reinvest those savings into your business. By understanding which credits are available and planning your expenditures around these opportunities, you can achieve significant financial benefits. Here’s how you can use tax credits to fuel your growth:

• Reinvest Savings: Use tax savings to expand operations, purchase new equipment, or hire additional staff.

• Fund Research and Development: Reinvest credits received from R&D activities into further innovation, allowing your business to stay competitive.

• Offset Future Expenses: Accumulate unused credits to offset tax liabilities in future years, providing a safety net for economic downturns or unexpected expenses.

Strategically using tax credits can give your business a competitive edge, allowing you to grow without increasing your overall costs.

Boost Your Business Growth with the Right Tax Strategy

Tax credits can be a game-changer for your business, but leveraging them to their full potential requires planning and expertise. By understanding which credits are available and how to claim them, you can reduce your tax bill and reinvest the savings into your business.

Want to see how these tax credits can fuel your business growth in the last quarter of 2024? Contact us for a free consultation, and we’ll help you identify and claim every credit you qualify for. Don’t let tax season pass you by—start maximizing your benefits today