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by Brittney Myers | Published on Nov. 19, 2022
Image source: Getty Images
A spoonful of credits makes the tax bill go down.
Check out our picks for best tax software
One of the most complicated parts of running a small business is figuring out your taxes. Most business owners are worried about ensuring they pay enough taxes. However, you should also spend a little time figuring out if you’re paying too much in taxes.
There are a ton of ways you can reduce how much your business pays in taxes. Tax deductions, for instance, reduce the amount of income you’re taxed on. Tax credits, on the other hand, reduce your actual tax bill.
Some of the best small business tax credits are about recouping some of what you spend to keep your employees happy. But there are also tax credits based on how your company operates. Here are some of the notable tax credits for small businesses.

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If you have a small business but still provide your employees with health insurance, you may qualify for this credit. It can reimburse your business for up to 50% of employer-paid insurance premiums — no small discount. That said, how large of a credit your business can qualify for will depend on a variety of factors, including how many full-time employees (or full-time equivalent employees) you have, their average salary, and the amount you’ve paid in premiums.
File: Tax Form 8941
Another benefits-related credit, your business may be eligible for a tax credit if you start up a pension/retirement plan. The credit applies to the cost of setting up the plan, as well as educating your employees about it. Only businesses with 100 or fewer employees will qualify, and you can’t have started a similar program within the last three years.
File: Tax Form 8881
Small businesses that help employees with childcare are eligible for credits toward the costs. Businesses that build and staff their own employee childcare facilities, as well as those that contract with outside facilities, can deduct 25% of qualified costs. There is also a 10% credit for the qualified resource and referral expenditures.
File: Tax Form 8882
This credit is designed to encourage employers to provide paid family and medical leave to their employees. It’s worth 12.5% of the wages paid to employees on qualifying family or medical leave throughout the tax year if you paid out at least 50% of their wages during the leave period. Paying out more increases your credit, with a maximum credit of 25% of paid wages if you paid 100% of the employee’s salary during their qualifying leave.
File: Tax Form 8994
Being an equal opportunity employer isn’t just about being altruistic. Businesses that hire employees from specific underserved populations can qualify for a tax credit of up to $2,400 (40% of the first $6,000 of the employee’s first-year wages). The list of eligible employees includes a variety of backgrounds, including people formerly incarcerated or convicted of a felony, people who receive SSI (supplemental security income) or family assistance, and people who have been unemployed long-term. There may be additional credits for hiring a qualified veteran.
File: Tax Form 5884
Making your business more accessible is not just the right thing to do; it can also earn your small business a tax credit. The credit can cover up to half your costs with a maximum of $5,000 in credits each year. Qualifying expenditures include a wide range of accessibility improvements, such as hiring interpreters, purchasing equipment, and modifying your property.
File: Tax Form 8826
Is your business considering going electric? You may be eligible for a tax credit for any plug-in electric drive vehicles you put into service. The vehicle must meet specific criteria — such as possessing a minimum 4 kWh battery — to qualify, and certain brands (Tesla and GM) are excluded. The amount of credit you’re eligible for will vary based on the make, model, and use conditions.
File: Tax Form 8936
How easy or difficult it is to qualify for a given tax credit varies a lot, both on the credit and your business. If you’re at all unsure as to whether your business qualifies, or how much to claim, consult a tax professional. It’s better to get help upfront than to wind up in hot water with the IRS later.
Our independent analysts pored over the perks and user reviews for the most popular tax provider services to land on the best-in-class picks to file your taxes. Get started by reviewing our list of the best tax software.
Brittney started her writing career in the world of science, putting her physics degree to good use. Her journey into finance started with building her personal credit, but soon grew into a borderline obsession with credit cards and travel rewards. For the last 7 years, she has enjoyed the ability to share her expertise with readers, as well as the opportunity to interview companies and individuals making an impact on our financial lives. She wholly believe most problems can be solved with the right research — and a good spreadsheet — and she specializes in translating complex financial topics into actionable advice to help educate and empower readers.
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