As December 31st draws near, here are a handful of tax moves your small business can make to cut its tax bill for the year, before the clock runs out on 2016.
As always, check with your tax advisor before committing your small business to a decision that has tax consequences.
Improve disability access
The American With Disabilities Act, or ADA, requires businesses that serve the public to make reasonable accommodations for people with disabilities to do business with them or work for them.
To help offset the cost to do so, the IRS offers small businesses a 50% tax credit on expenses over $250 and up to a maximum of $10,000.
That credit could help you cover the cost of making modifications like providing large print or Braille menus at your restaurant for customers who are blind or partially sighted or buying adaptive equipment for your dental practice for patients with physical disabilities.
The credit is capped at $5,000 and is just for small businesses. A small business qualifies if it had revenue of $1 million or less in the prior year and no more than 30 full-time employees.
To take the credit, use IRS Form 8826, Disabled Access Credit.
You can also take a tax deduction for any of the cost that didn’t qualify for the credit.
Make a tax-savvy hire
Your first priority of course is to find a person who is qualified to do the job, but if that person also is in one of the groups targeted by the government for expanded work opportunities, your business could qualify for a tax credit if it makes the hire.
Qualified military veterans, people who have been out of job for 6 months and even summer youth workers are covered.
You and the applicant have to fill out IRS Form 8850 and send it to your state workforce agency to get the certification you need to file the claim. Then you can claim the credit as a general business expense.
Give out bonuses
The IRS allows a business to deduct cash bonuses paid to employees and owners. There are no limits on the amount of the bonuses but they have to be reasonable compared to a person’s salary. The deduction is taken as a regular business expense on your business tax return.
And don’t forget to remind employees that you have to withhold taxes from bonuses, which the IRS considers to be supplemental wages.
Give to charity
Cash donations are the easiest to claim. For a gift under $250, your small business just needs a receipt or a record like a credit card statement to claim the deduction as a general business expense.. For a cash donation of $250 or more, you have to get a written, descriptive receipt from the recipient charity. If you happen to give less than that each month to a charity, each donation counts as a sub-$250 gift and doesn’t require a written receipt.
Pay for healthcare insurance for your employees
If your small business buys health insurance through one of the online marketplaces in SHOPS, the Small Business Health Options Program offered by the federal government and some states, it may qualify for a tax credit for part of the cost of premiums you cover for your employees.
You can take the credit for two years. And you have to have fewer than 25 full-time-equivalent employees and pay an average wage of less than $52,000 to qualify.
To take the credit, use IRS Form 8941, Credit for Small Employer Health Insurance Premiums.
Set up a retirement savings plan
Take a start-up tax credit: A small business can get a tax credit for part of the cost to set up and administer its first retirement savings program, including a 401(k) plan. The credit covers 50% of the cost, up to $500 a year, for three years. It also covers the expense of educating your team about the new plan.
To qualify, your small business had to have no more than 100 employees in the prior year and have paid them at least $5,000 each. To take the credit in the current tax year, a business has to set up a plan before the end of the year. Certain retirement plans have earlier deadlines, including a Safe Harbor 401(k), which had to be set up by Oct. 1 to and a SEP IRA, which is Oct. 15.
To take the credit, use IRS Form 8881, Credit for Small Employer Pension Plan Startup Costs.
Take a contribution tax deduction: You also can deduct the contributions your business makes to its employees’ retirement savings accounts, including your own. In 2016, the maximum tax deduction an employer can take is 25% of the total compensation of the employees in the plan.
The deadline for setting up a plan ad making contributions you can deduct for 2016 depends on the type of plan you have. Oct. 1 was the deadline for a SIMPLE IRA, for example, but you can made deductible contribution through the due date of your tax return, including extensions.
A Safe Harbor 401(k) has to be set up by Oct. 15, but contributions can be counted for the entire year. You have until Dec. 31 to set up a traditional 401(k) plan, but don’t wait to the last mintue because contributions have to be made before that to count against 2016 taxes.
The end of the year is a busy time for most small businesses but the chance to save on your tax bill makes taking some of the steps above worth the effort and initial expense, once your are filling out your 2016 income tax return.