# A Beginner’s Guide to Small Business Tax Credits and Incentives
By Laurence Sotsky
In this world, nothing can be said to be certain, except death and taxes. But are you aware that the government offers a range of credits and incentives (C&I) in return for taxes that your business pays?
The breadth of C&I is vast and the financial value attached to them varies depending on the program. The benefits, however, extend far beyond mere numbers. Saving on taxes not only enhances the cash flow and profitability of businesses, but also allows companies to serve as economic engines and providers of crucial employment opportunities within their communities. Unfortunately, many business owners are unaware of these opportunities and fail to harness their potential.
Let’s explore three under-the-radar strategies.
## Small business tax credits and incentives you might not be aware of
### 1. Employer incentives
Many small business owners take pride in supporting their communities with jobs. Small business owners often have diverse hiring practices and provide opportunities to veterans, marginalized communities, and those who may have faced barriers to employment. The federal government provides credits and incentives for hiring practices you may already be following, as well as incentives that allow you to retain existing employees.
Here are four credits and incentives for employers that you may be missing:
– **[Employee Retention Tax Credit](https://www.irs.gov/coronavirus/employee-retention-credit) (ERC):** Created in response to the Covid-19 pandemic, the ERC is a federal program that incentivizes employers to retain their employees during challenging economic times.
– **[Work Opportunity Tax Credit](https://www.dol.gov/agencies/eta/wotc) (WOTC):** This federal tax credit encourages employers to hire individuals from 10 specific groups that have faced significant barriers to employment. Congress recently extended the WOTC program until December 31, 2025.
– **[Differential Wage Payment Credit](https://www.irs.gov/forms-pubs/about-form-8932):** Employers making payments to employees on active military duty may qualify for this IRS credit, which equals 20% of up to $20,000 of differential wage payments made to each eligible employee.
– **[Paid Family and Medical Leave Credit](https://www.irs.gov/newsroom/section-45s-employer-credit-for-paid-family-and-medical-leave-faqs):** Providing a tax credit to employers who offer paid family and medical leave, this program helps support employees during important life events.
### 2. Innovation and “looking forward” incentives
Innovation is an important strategy to future-proof your business. Small businesses that invest in looking forward via research or certain new technologies can benefit their bottom line with the following credits and incentives:
– **[Research Credit](https://www.irs.gov/businesses/research-credit-claims-audit-techniques-guide-rccatg-credit-for-increasing-research-activities-ss-41):** A dollar-for-dollar reduction in federal income taxes, this IRS tax credit benefits businesses engaged in qualified research and experimentation activities, facilitating innovation and technological advancement.
– **[Commercial Clean Vehicle Credit](https://www.irs.gov/credits-deductions/commercial-clean-vehicle-credit):** This credit, available under Internal Revenue Code (IRC) 45W, promotes the purchase of qualified commercial clean vehicles, contributing to efforts against climate change.
– **[Alternative Fuel Vehicle Refueling Property Credit](https://www.irs.gov/credits-deductions/alternative-fuel-vehicle-refueling-property-credit):** Encouraging businesses to transition to cleaner fuels, this credit supports those with vehicle fleets or involved in providing fuel to the public.
### 3. Disaster incentives
Small business owners may not realize that a commitment to communities where there has been a disaster or the area is distressed can be eligible for tax credits and incentives:
– **[Disaster Relief Program](https://www.sba.gov/funding-programs/disaster-assistance):** The Small Business Administration (SBA) offers low-interest disaster loans to businesses located in declared disaster areas, assisting them with various expenses and mitigating economic hardships.
– **Empowerment Zone Credit:** These credits incentivize businesses to locate in distressed areas, promoting economic development and revitalization efforts.
## Taking advantage of tax credits can help you grow your business
Small businesses can use tax credits and incentives to map planned projects such as expansion. Knowing what is available in advance can allow you to be intentional in your strategy and secure additional revenues that help you reach your goals.
## Small business tax credit FAQs
**Is there a tax credit for starting your own business?**
For a business’s first year of operation, the IRS permits a startup tax deduction of $5,000 for startup costs and an additional $5,000 for organizational costs. If you have startup or organizational costs over $50,000, your available first-year deductions will be lowered by the amount that you exceed $50,000. The remaining amount must be amortized.
**How can small businesses avoid paying high taxes?**
Small business owners often focus on minimizing taxes, but it’s more important to maximize growth. Rather than investing in lifestyle expenses, prioritize infrastructure, hiring, and product development. These areas offer substantial tax write-offs and can drive significant business expansion. Think big, aim for zero taxes, and triple your business in five years.
**What is the research and development tax credit for 2023?**
The R&D Tax Credit rewards businesses investing in research and development. It stimulates innovation, technology, and new offerings. The federal credit, a percentage of qualified research expenses (QREs), covers employee wages, supplies, and contract research costs.
## About the Author
**Laurence Sotsky**
Laurence Sotsky is the CEO of Incentify, a tax credits and incentives (C&I) solutions provider. Laurence founded Hopscotch, a venture-backed SaaS-based mobile app development platform in sports and entertainment, and as a member of the SocalTech 50, where he has made significant contributions to the Los Angeles tech community and facilitated three successful company exits. Laurence graduated with honors from Claremont McKenna College and holds dual degrees in chemistry and economics.
**Company:** Incentify
**Website:** [www.incentify.com](https://www.incentify.com)
**Connect with me on** [LinkedIn](https://www.linkedin.com/in/laurencesotsky) **and** [Twitter](https://twitter.com/sotsky)
