If you hire an employee for your Schedule C business, you can qualify for several valuable tax credits. Each credit is different, and certain limitations apply to all or most employer tax credits. Remember, tax credits are the best. They beat deductions. Note the difference below (using the 32 percent bracket):

A $1,000 deduction for wages reduces your income taxes by $320.
A $1,000 credit reduces your taxes by $680 ($1,000 – $320).

Many tax credits are not available if you hire a person related to you, including children, stepchildren, a spouse, parents, siblings, step-siblings, nephews, nieces, uncles, aunts, cousins, or in-laws.

Eight Valuable Tax Credits for Business Owners

Below are listed the eight non-refundable tax credits that Schedule C business owners can claim when they hire employees.

Work Opportunity Tax Credit (WOTC). The WOTC rewards employers for hiring employees from groups the IRS has identified as having “consistently faced significant barriers to employment.”
Family and Medical Leave Credit. Federal law doesn’t require that you give paid leave to your employees who need to take time off for family reasons (such as the birth of a child) or due to their illness or that of a family member. (A few states require some paid leave that’s funded through payroll deductions). But if you choose to provide such paid leave, the federal tax code may reward you with a family and medical leave tax credit.
Credit for Small Employer Health Insurance Premiums. If you have fewer than 50 full-time-equivalent employees, you are not required to provide your employees with health insurance. But if you elect to do so, you may qualify for the small business health care tax credit. This tax credit is available to eligible employers for two consecutive tax years.
Credit for Small Employer Pension Plan Start-Up Costs. This credit is for the cost of setting up an employee pension plan, including a new 401(k) plan, 403(b) plan, defined benefit plan (a traditional employee pension plan), profit-sharing plan, SIMPLE IRA, or SIMPLE 401(k), or SEP-IRA. The costs covered by the credit include the expenses to establish and administer the plan and to educate employees about retirement planning.
Credit for Employer-Provided Childcare Facilities and Services. This little-used credit is intended to encourage employers to provide childcare to their employees. There are two ways to get the credit:

- Build, acquire, rehabilitate, or expand an on-site childcare facility for your employees’ children, and help pay to operate it.
- Contract with a licensed childcare program, including a home-based provider, to provide childcare for your employees.

The second option is more realistic for smaller businesses. Businesses often partner with childcare companies such as the Learning Care Group, Bright Horizons, and KinderCare to offer this benefit.

Empowerment Zone Employment Credit. Is your business located in one of the designated empowerment zones? These are areas of high poverty and unemployment identified by the U.S. Department of Housing and Urban Development or Secretary of Agriculture. You can find a list and map on the HUD website.

Key point. You might be surprised which places the government designates as having high poverty and unemployment. It’s worth checking out.

You can claim a credit equal to 20 percent of the first $15,000 in wages you pay to full- or part-time employees who both live and work in an empowerment zone.

Thus, the maximum credit is $3,000 per employee (20 percent x $15,000). The employees must work for you for at least 90 days.

Credit for Employer Differential Wage Payments to Military Personnel. This credit is available if you have an employee in the military reserves who are called to active duty for more than 30 days. If you continue to pay the employee all or part of that employee’s wages while he or she is on active duty, you can claim a credit equal to 20 percent of the payments, up to $20,000.
Indian Employment Credit. This credit is available only if you hire an enrolled member of an American Indian tribe who both lives and works on an Indian reservation. If this is the case, you may claim a tax credit equal to 20 percent of the wages and health insurance benefits you provide the employee. The Indian employment credit ends December 31, 2021.

If you would like to discuss how to take advantage of these or other tax credits, please call us at 757-410-8030.

Whether you are expecting a nice tax refund or preparing to write a big scary check, you know that April 15 is the annual tax filing deadline. What you may not know, however, is that tax day is every day at the IRS, and the tax agency is always reviewing the information taxpayers and business owners have provided.

That means that keeping tax records is about more than just smart bookkeeping – it is an integral form of self protection. You see, millions of Americans get letters from the IRS stating they owe back taxes or requesting more information about their tax returns.

It may be disconcerting, but the IRS has the right to request additional information months, or even years, after the return you filed has supposedly been processed and accepted. In fact, the much feared tax agency can request additional documentation for up to three years after the annual tax deadline has come and gone.

We help people resolve their back tax problems and often settle with the IRS for less than the amount they owe, but in order to do this, we need to provide the right records. Thats where having your tax records saved can be the difference between settling your tax debt or not.

As a result, it is important to retain your tax records and keep certain tax documents on hand, just in case the IRS asks for them. Here are the most common tax records and how long you should keep them around.

If you owe back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about. [https://calendly.com/premiersmlbus/consult]

Save The Tax Returns Themselves

In most cases the IRS will have up to three years to question the figures you reported on your tax return, or otherwise challenge the information you provided. You may think the tax year is over, but for the IRS the final curtain does not fall for a full 36 months.

For this reason, it is generally a good idea to keep your old tax returns for a minimum of three years. You do not necessarily have to print and retain hard copies of your tax returns – electronic documents are fine as long as you will be able to access them quickly should you need them.

If you fail to keep copies of your tax returns, you can still access them by asking the IRS for transcripts. It is best to keep your own records, and doing so will make your life a lot easier.

Pay Stubs and W2 Forms

As with the tax returns themselves, it is generally a good idea to keep your W2 forms for a minimum of three years. This will provide you with the documentation you need should the IRS find a discrepancy between the amount of income you reported to the agency and the figures your employer provided.

It is also a good idea to retain at least your year-end pay stubs, not only to help reconcile them with the W2 forms but also for other forms of income documentation. If you are applying for a mortgage, for instance, the lender may ask to see several years worth of tax returns, pay stubs and other income documents, and having them on hand will make the application process faster and easier.

Income and Dividend Forms

The IRS looks at all of the income you report when you complete and submit your tax returns, but the agency does not just take your word for the accuracy of those figures. Instead the IRS uses sophisticated matching programs to compare the amount of income you reported from various sources with what they receive from third party sources.

Those third party sources could include your bank and credit union, your brokerage firms and mutual fund companies and any other places that provide you with income. It is therefore a good idea to hold onto any income related forms you receive for at least three years, and possibly longer if you run your own business or earn income from gig work or freelancing.

Once again, these income documents can do double duty, serving as backup if the IRS questions the numbers on your tax return but also giving you the information lenders and others might need down the road. If you store these documents electronically you will not even need to worry about buying a file cabinet, so there is really no reason to not keep them around.

Filing taxes can be a stressful experience, but the difficulty does not end when you click send on your e-filed tax return. Even after that return has been filed and accepted, the IRS could still question or challenge your numbers, and that is why it is so important to retain the backup documentation until the challenge window has passed. Now that you know what to retain and for how long, you can rest a little easier when tax time rolls around.

If you do run into tax trouble or the IRS states you owe back taxes, reach out to our tax resolution firm and we’ll schedule a free, no-obligation confidential consultation to explain your options in full to permanently resolve your tax problem. [https://calendly.com/premiersmlbus/consult]