Don’t Leave Money on the Table: Tax Credits Small Businesses Often Miss

Running a small business isn’t easy. Between juggling sales, managing payroll, and keeping operations running smoothly, it’s easy to miss out on something important like free money from Uncle Sam. That’s right, many small business owners leave valuable tax credits on the table simply because they don’t know they exist. 

But before we get into the credits you might be missing, let’s get the basics straight.

Tax Deduction vs. Tax Credit

So, here’s the deal, both reduce your overall tax burden, but they work in different ways and impact your bottom line differently.

Tax Deduction:

A tax deduction lowers your taxable income the amount the IRS uses to calculate your taxes. The actual tax savings depend on your income tax rate.

Example:

If your business earns $100,000 and you deduct $10,000 in business expenses (like office rent or advertising), your taxable income becomes $90,000.

If you're in the 20% tax bracket:

Without deduction: 20% of $100,000 = $20,000 in taxes

With $10,000 deduction: 20% of $90,000 = $18,000 in taxes

So, you save $2,000 in taxes because 20% of the $10,000 deduction = $2,000.

That's how deductions lower your final tax bill by reducing the income that's taxed.

Tax Credit:

A tax credit reduces your actual tax liability, dollar for dollar meaning it subtracts directly from the amount you owe the IRS.

Example:

Let’s say your tax bill is $5,000. If you qualify for a $2,000 tax credit, you only pay $3,000 in taxes, no matter what your tax bracket is.

 

Tax Credits Small Businesses Often Forget to Claim

You might be eligible for more credits than you think. Let’s break down some commonly overlooked ones that could fatten your wallet come tax season.

1.    Work Opportunity Tax Credit (WOTC)

Hiring someone new? You could get a tax break.

If you hire individuals who face barriers to employment (like veterans, ex-felons, etc.), the WOTC might give you up to $2,400 per eligible full-time hire.

Some categories even qualify you for more. But there’s a catch you gotta act fast. You need to submit IRS Form 5884 within 28 days of the hire date.

Pro Tip: If you’re already hiring anyway, screen applicants for WOTC eligibility. You might get a nice return for simply giving someone a second chance.

2.    R&D Tax Credit (Form 6765)

The Research and Development (R&D) tax credit (Form 6765) is a valuable incentive that helps businesses reduce their tax liability by rewarding innovation. Contrary to popular belief, this credit isn’t just for big tech companies or scientists in lab coats it’s available to businesses of all sizes that are working to improve products, processes, or technologies.

Qualifying activities can include things like:

•    Developing or improving software or mobile apps

•    Creating prototypes or testing new products

•    Enhancing manufacturing processes

•    Architectural or engineering design

•    Conducting technical research to overcome uncertainties

In some cases, businesses may also qualify based on basic research payments made to qualified institutions or under contract though this is less common for small businesses.

3.    Investment Tax Credit (Form 3468)

This one’s a bit more niche but powerful.

If your business invests in certain properties or energy projects, you might qualify for credits under the Investment Credit, including:

•    Rehabilitation of old buildings

•    Energy projects (like solar panels or wind)

•    Advanced coal or gasification projects

•    Alternative fuel vehicle refueling equipment

•    Qualifying advanced energy projects

If you’ve gone green or modernized your space, this is worth digging into.

4.    SECURE 2.0 Act Retirement Credits

Worried about retirement plans being too expensive to set up? Uncle Sam’s got your back.

The SECURE 2.0 Act gives small businesses a tax credit for starting a retirement plan like a 401(k) or SIMPLE IRA. You could get back up to 100% of startup costs, up to a cap.

It also provides credits if you add auto-enrollment to encourage employees to start saving.

5.    Employer Credit for Paid Family and Medical Leave (Form 8994)

If you're offering your employees at least 2 weeks of paid family or medical leave you’re eligible for a credit of 12.5% to 25% of the wages paid, depending on how much of their salary you’re covering.

It’s a great way to support your team while boosting your company’s reputation and you get some money back too. This credit’s available through 2025, so don’t sleep on it.

6.     Plug-In Electric Drive Vehicle Credit

Thinking of switching to electric for your business rides? Good news you could get up to $7,500 in federal tax credit for each qualifying vehicle.

To be eligible, your EV must:

•    Be brand new and purchased (not leased)

•    Be rechargeable externally

•    Weigh under 14,000 pounds

•    Come from a manufacturer that hasn't hit the 200,000 EVs sold cap (prior to 2023 rules)

And here’s the catch:

For vehicles purchased after August 16, 2022, final assembly must be in North America.

7.    Empowerment Zone Employment Credit

If your biz operates in an “empowerment zone” you can claim $3,000 per employee you hire and retain in that zone.

Check the zone maps online. You might already be sitting in one and not even know it.

8.     Natural Disaster Relief

Let’s face it, no one plans for a hurricane, wildfire, or massive flood to hit their business. But if disaster strikes and your area is declared a federal disaster zone, the IRS might cut you some slack.

When the President officially declares a major disaster, affected areas become eligible for federal tax relief. That means if your small business operates in one of those zones, you could qualify for:

•    Filing & Payment Extensions

You might get more time to file your taxes or make payments, no penalties or late fees.

•    Casualty Loss Deductions

If your property office, equipment, inventory was damaged or destroyed, you may be able to write off those losses, even if you don’t itemize. These casualty loss deductions can help you get a bigger refund or lower your taxable income.

What You’ll Need:

•    Documentation of the damage (photos, repair invoices, insurance claims)

•    Receipts for related expenses

•    Tax transcripts to support your amended filings (you can get these online or by mail)

•    If you had to relocate, notify the IRS with Form 8822 so you don’t miss important notices

Quick Tip:

Don’t assume you’re not eligible, check if your area was officially declared a disaster zone by visiting the FEMA or IRS disaster relief websites.

The IRS often waives fees and speeds up the process for disaster-related claims. If your business was affected by a natural disaster, checking into this could bring real money back into your pocket.

Don’t Let Free Money Go Unclaimed 

Let’s face it, tax stuff isn’t exciting. But ignoring tax credits means missing out on real savings your business could make. When you're undertaking your tax preparation, here's what you should do: 

Bookmark IRS forms like Form 3800, which bundles many business credits. 

Work with a CPA or tax pro who stays up-to-date on credit eligibility. 

Don’t assume your business is “too small” to qualify. Even side hustlers and startups can benefit.