Maximize Your Small Business Tax Breaks During the Pandemic

Small Business Tax Breaks to Help You Weather the Pandemic

As a small business owner, you're likely feeling the impact of the pandemic on your finances. With reduced revenue and increased expenses, it's more important than ever to take advantage of tax breaks to help your business weather the storm. In this guide, we'll explore some of the most valuable tax breaks available to small businesses during the pandemic.

1. Employee Retention Credit

The Employee Retention Credit is a refundable tax credit available to employers who have been affected by the pandemic. The credit is equal to 50% of the first $10,000 in wages paid to each employee, up to a maximum credit of $5,000 per employee. To be eligible, your business must have experienced a significant decline in gross receipts during the pandemic.

2. Paycheck Protection Program (PPP) Loan Forgiveness

If your business received a PPP loan, you may be eligible for loan forgiveness. The PPP loan forgiveness program allows businesses to have their loans forgiven if they use the funds for eligible expenses, such as payroll, rent, and utilities. To be eligible, your business must have used at least 60% of the loan funds for eligible expenses.

3. Depreciation and Amortization Deductions

As a small business owner, you may be able to deduct depreciation and amortization expenses on your tax return. Depreciation is the decline in value of assets over time, while amortization is the decline in value of intangible assets, such as patents and copyrights. By deducting these expenses, you can reduce your taxable income and lower your tax liability.

4. Net Operating Loss (NOL) Carryback

If your business has experienced a net operating loss (NOL) due to the pandemic, you may be able to carry back the loss to previous years and receive a refund of taxes paid. The NOL carryback period is extended to five years for tax years 2018 through 2020.

5. Research and Development (R&D) Tax Credit

The R&D tax credit is a refundable tax credit available to businesses that engage in research and development activities. The credit is equal to 14% of qualified research expenses, up to a maximum credit of $250,000. To be eligible, your business must have spent at least $50,000 on qualified research expenses.

6. Work Opportunity Tax Credit (WOTC)

The WOTC is a refundable tax credit available to employers who hire individuals from certain targeted groups, such as veterans, youth, and individuals with disabilities. The credit is equal to 40% of the first $6,000 in wages paid to each eligible employee, up to a maximum credit of $2,400 per employee.

7. Tax-Exempt Interest on Municipal Bonds

If your business has invested in municipal bonds, you may be able to deduct the interest on those bonds from your taxable income. Municipal bonds are issued by state and local governments to finance public projects, and the interest on those bonds is exempt from federal income tax.

8. Charitable Contributions

As a small business owner, you may be able to deduct charitable contributions from your taxable income. Charitable contributions can include donations to qualified charities, as well as donations of goods and services.

9. Business Use of Home

If you use your home for business purposes, you may be able to deduct a portion of your rent or mortgage interest from your taxable income. The deduction is based on the percentage of your home that is used for business purposes.

10. Home Office Deduction

If you have a home office, you may be able to deduct a portion of your rent or mortgage interest from your taxable income. The deduction is based on the percentage of your home that is used for business purposes.

By taking advantage of these tax breaks, you can help your small business weather the pandemic and come out stronger on the other side. Remember to consult with a tax professional to ensure you're taking advantage of all the tax breaks available to your business.