Now that the Tax Cuts and Jobs Act has cut down on or eliminated some tax breaks for businesses, you will want to maximize all applicable tax credits. Tax credits decrease tax liability dollar-for-dollar, potentially making them more beneficial than deductions, which lower only the amount of income subject to tax. There are two tax credits still available which will provide distinct benefits for small business owners.
Credit for paying health care coverage premiums
The Affordable Care Act (ACA) extends a credit to some small employers that provide health coverage to their employees and can be highly beneficial to small businesses.
The maximum credit is 50% of group health coverage premiums paid by the employer, if it contributes at least 50% of the total premium or of a benchmark premium. Eligibility rules for 2017 dictate that to receive full credit, the company must employ 10 or fewer full-time equivalent employees (FTEs), with average annual wages of $26,200 or less per employee. Partial credits are available on a sliding scale to businesses with fewer than 25 FTEs and average annual wages of less than $52,400.
ACA credit can only be claimed for two years and those years must be consecutive. Credits claimed before 2014 do not count. Congress has repeatedly attempted to repeal the ACA in 2017; if you qualify but have been holding off, hoping to claim the credit in a future year when you believe it will provide more savings, you might want to claim the ACA credit for 2017. It’s possible the credit will be eliminated in the future if lawmakers in Washington continue to rally against it.
Should there be an ACA repeal or replacement, it probably wouldn’t take effect until 2019 at the earliest. If you claim the credit for 2017, you might also be eligible to claim it on your 2018 return (if you meet the requirements again). Doing so enables you to take full advantage of the ACA credit before it’s rescinded.
Credit for starting a retirement plan
Small employers (typically with 100 employees or less) that set up a retirement plan may qualify for a $500 credit per year for three years. The credit is limited to 50% of qualified start-up costs.
Generally you can deduct any contributions made to your employees’ accounts under the plan, plus your workers enjoy the benefit of tax-advantaged retirement saving. It might not be too late to create a retirement plan for 2017, even if you haven’t set it up yet.
You can create Simplified Employee Pensions (SEPs) as late as the due date of your tax return, including extensions. If you’d like to set up a different type of plan, consider doing so for 2018 in order to take advantage of the retirement plan credit (and other tax benefits) when you file your 2018 return next year.
Remember that other rules and limits apply to these tax credits. We at JLK Rosenberger are happy to help you determine eligibility for these or other credits on your 2017 tax return. Let us also help you take appropriate actions needed this year as you plan for credits you can claim on your 2018 return. Just call us at 818-334-8623 or click here to contact us.