This tax season – coming as it does amid such economic uncertainty – it’s more important than ever to take advantage of the tax credits and deductions available to you and your law practice.
Some of these credits will be familiar. Maybe you claimed them in previous tax years. Others are relatively new, and you might need to do some homework to determine if you qualify.
Either way, you could be losing money by not knowing what’s available.
“Few business owners are aware of the full range of tax credits of which they can take advantage,” says this post from the U.S. Chamber of Commerce. “Quite often small businesses leave significant amounts of money on the table by neglecting to take advantage of tax credits.”
Below are some tax credits cited in the Chamber’s post that you shouldn’t overlook.
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Tax Credits You Shouldn’t Overlook
For starters, you need to know the difference between a tax credit (which reduces the amount of tax owed by giving you a dollar-for-dollar reduction of your liability) and a deduction (reduces how much of your business income is subject to taxes).
“Too often, business owners focus exclusively on deductions and ignore the potential to claim equally beneficial credits,” says Emily Heaslip in the Chamber of Commerce post.
Here are some credits to consider:
- Work Opportunity Tax Credit. The credit can be claimed by employers who hire individuals from specific targeted groups, based on three things: the category of workers hired; the wages paid to those employees in their first year; and how many hours these employees worked. Some law firms (BigLaw primarily) may qualify for this.
- The SECURE Act offers credits for implementing a 401K plan or adding an auto-enrollment feature to a plan. Companies can receive a credit up to $5,000 to offset startup costs of creating a 401K plan.
- Retirement Plans Startup Costs Tax Credit
- Health Coverage Tax Credit
- Credit for Increasing Research Activities
- Plug-In Electric Drive Vehicle Credit
- Alternative Motor Vehicle Credit
- Empowerment Zone Employment Credit
- New Markets Credit
Tax Credits Related to COVID
- The Families First Coronavirus Relief Act provides tax credits to cover certain costs of employee sick leave and expanded family and medical leave for reasons related to COVID-19 from April 1 through December 31, 2020.
- The Employee Retention Credit offers employers whose operations have been partially or fully suspended due to COVID a percentage of qualifying wages for full-time employees you keep on your payroll.
- “Small businesses with PPP loans forgiven will not be able to deduct the associated costs on their tax return,” says one tax expert in the Chamber’s post. “To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60 percent of the funds on payroll over a covered period.”
Bottom line: talk to your accountant to make sure you get full advantage of tax credits and deductions to which you’re available.
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