Governments use tax deductions and credits to reward businesses for providing employment opportunities, developing and enhancing solutions, improving the economy, and making the world a better place through activities like combating climate change.
Tax credits and tax deductions are excellent opportunities for businesses to lower their tax liability significantly. As a company in the healthcare sector, you have a higher chance of qualifying for these tax savings.
Here are some tax credits and deductions that healthcare companies are eligible for:
1. Research and Development Tax Credit
This type of tax credit, also known as R&D, was introduced by the United States government to encourage companies within the private sector to undertake innovation. For example, pharmaceutical firms enjoy this tax credit as an incentive to improve research for vaccines.
Through the R&D tax credit, healthcare companies retain higher profits on their products resulting from research. This is possible given that the firms pay fewer taxes and thus spend less on research.
The R & D tax credit is not limited to a particular industry. For a company to qualify for this credit, it needs to be involved in creating new products or systems, developing or enhancing software, or improving already existing products or systems. Thus, firms in agriculture, manufacturing, engineering, energy, textile, and healthcare, among many others, can benefit from it.
Examples of areas where healthcare companies can qualify for the R&D tax credit include the development or enhancement of performance-related surveys for professionals in the mental health sector. Creating unique seating arrangements like an armchair that also serves as a wheelchair for those in care homes also calls for research and development. Introducing processes that help to remove contaminants from chemical compounds promotes respiratory health. Also, building prototypes for orthopedic instruments fall under research and development due to the complex medical components involved.
State and federal credit rates can vary. For example, the federal R&D rates are 20%, while the California rate is 15%.
2. Small Business Healthcare Tax Credit
Both established and small businesses can benefit from tax credits. The Affordable Care Act in the United States brought forth the small business tax credit. Firms that offer their workers health insurance are eligible for this tax credit.
To qualify for the tax credit, your company needs to have a maximum of 25 full-time employees, pay each employee $55,000 a year or below, cater for half or more of their health insurance premiums and have insurance from the Small Business Health Options Program (SHOP) market.
The Small Business Healthcare Tax credit can cover up to 50% of the health insurance premium payments for your employees.
You should know that you cannot claim the credit two years in a row.
3. Pass-Through Deductions
If you are a sole proprietor, are in a partnership, S corporation, limited liability partnership, or any form of business that subjects you to a pass-through, you can get a deduction. A pass-through deduction can lower the taxes on your net income by 20%.
Companies that fall under the category of prohibited specified trade do not qualify for pass-through deductions unless they fulfill certain conditions. Examples of this include clinical entities that are operated by the owner.
4. Business Expense Deductions
Some expenses you incur in running a business can make you eligible for tax deductions. If you are starting your business, you can apply for a deduction on your capital expenses. After that, you are eligible for deductions on your business expenses. If you travel a lot for business, you can have deductions for travel costs.
Knowing which tax credits and deductions you are eligible for, when they’re due and how to apply for them can be confusing. That is why it’s vital to enlist the services of tax credit experts like Incentax who will simplify the process for you and help you take optimum advantage of the available federal and state tax credits.