TOP DRAWER ARTICLE

Business Tax Credits
by
HL Carpenter

A quick glance at financial news reveals plenty of federal income tax credits for personal tax returns. But are any of these dollar-for-dollar reductions in tax available for your business?

The answer is yes. Here are three to keep in mind when preparing your 2009 federal income tax return.

Pension Plan Start-up Costs. Did you establish a retirement plan such as a 401(k), SIMPLE, or SEP during 2009? File IRS Form 8881 to claim a credit of 50% of the amount you spent to set up and administer your plan. Costs can include those incurred in educating your employees about the new plan. The maximum per-year credit is $500, and you can claim it during each of the first three years your plan is in existence.

Alternative Fuel Motor Vehicles. Vehicles you purchased for use in your business during 2009 that use fuel cells, lean-burn technology, natural gas, or a combination of a gasoline engine and an electric battery may qualify for a credit on IRS Form 8834. The amount varies with the type of vehicle.

Differential Wage Payments. If you continued to pay your military or reservist employees a supplemental or “differential” wage while they were on active duty during 2009, a credit of 20% of the first $20,000 of those wages is available. IRS Form 8932 has the details.

Other federal income tax credits for businesses include breaks for providing easier access to your business for the disabled, hiring employees in targeted groups such as unemployed veterans, and making your business premises more energy efficient.

Originally published January 2010.

Last update: January 8, 2011