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TAX TALK: Small Business Tax Credits

Posted by Hal Zemel, CPA, J.D., LL.M. on Mar 7, 2016 1:00:00 PM
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Small business taxpayers need to consider their eligibility to claim various tax credits. Tax credits reduce your tax liability dollar for dollar making them more valuable than deductions. If your business offers employee benefits, you may be eligible for one of two – the retirement plan credit or the small-business health care credit.

Here are the facts regarding the retirement plan credit; next week’s blog will address the small-business health care credit.

Retirement plan credit
The retirement plan credit allows small employers (generally those with 100 or fewer employees) to claim a credit of 50% of qualified startup costs paid or incurred during the year for creating an eligible employer retirement plan. To claim the credit, you must meet the following requirements:

  • The retirement plan must have at least one employee eligible to participate who is not highly compensated.
  • The costs must relate to the establishment or administration of the plan or for the retirement-related education of the employees with respect to the plan.
  • The credit applies only to plans first effective after December 31, 2001.
  • The credit is limited to $500 per year for the costs paid or incurred during the first year the plan is effective and the next two succeeding years (first three years).
  • You must reduce your income tax deductions for the startup costs by the amount of the credit.
  • The credit is not available to reduce the alternative minimum tax.
  • Any available credit not used may be carried over or carried back as a general business credit (if the credit is not used at the end of the carryover period, you may deduct the amount in that year).

Of course, you generally can deduct contributions you make to your employees’ accounts under the plan. And your employees enjoy the benefit of tax-advantaged retirement saving.

Take all the credits you’re entitled to
If you’re not sure whether you’re eligible for this credit, contact me at hzemel@berdonllp.com or your Berdon advisor, we can help. We can also advise you on what other tax credits you might be eligible for when you file your 2015 return.

Hal Zemel, a Tax Principal at Berdon LLP, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.

Topics: TAX TALK

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