How to take advantage of dollar-for-dollar savings, courtesy of Uncle Sam

Many small business owners miss or misunderstand the power of tax credits to build their businesses. If you read my column, you understand that a tax deduction is something that reduces how much taxable income you claim. A tax credit is something that directly reduces how much tax you owe.

A credit is a dollar-for-dollar benefit on your taxes, meaning that a $3,000 tax credit saves you $3,000 at tax time. Here are two common tax credits that many entrepreneurs simply don’t know about that can save thousands of dollars.

1. Your research may qualify you for savings.

What comes to mind when you think of research and development? Large scientific or pharmaceutical companies, perhaps. But you may not realize that “qualified small businesses” can use something called the Credit for Increasing Research Activities to build your business and, potentially, increase your profit.

Whether your company needs to do R&D to develop new products or discover new methods for your existing operations, you may qualify for this tax credit, which can help underwrite the cost of research.

The key word here is “qualified.”

A qualified small business is a corporation or partnership with gross receipts of less than $5 million for the current year and no gross receipts for any year preceding the fifth year prior to the current year. In other words, it’s designed for young, growing businesses. For example, a business with $3.5 million in gross receipts in 2017 and no gross receipts prior to 2012 may use this option. This doesn’t include a tax-exempt organization under section 501, so non-profits don’t count.

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