3 Key Tax Credit Tips for Tech Companies

By July 21, 2020Credit, Tax Credits
tax credits technology company

Running a business is inseparable from paying taxes. As a tech entrepreneur, you must be aware of your tax obligations starting from City Hall up to the federal government.

To keep your taxes under control, you should understand which taxes your firm must pay, the amount of outstanding taxes, and the when to file.

A small mistake can lead to your tax bills go through the roof. But by planning well, taking advantage of available tax deductions, and preparing your tax returns diligently, you can significantly save on the amount of owed taxes. This is where tax credits come in.

A business tax credit is a particular tax incentive that reduces the amount of taxes a business owes the government.  Business tax credits are available to companies when filing their annual tax returns with the International Revenue Service.

Benefits of Business Tax Credits to Tech Companies

To understand the benefits of tax credits to tech companies, we should break down business tax credits further. Business tax credits occur in varied forms. Available business tax credits include research and experimentation, investment, welfare-to-work, and work opportunity, just to mention a few.

Businesses must claim these tax credits by filing the specific forms for that tax credit on the IRS Website. Alternatively, you can seek the help of a licensed tax professional or an accountant. Keep in mind that the applicable tax credit forms and the available credits change yearly. So, before you file your tax returns, you should consult with the IRS website.

The main advantage of business tax credits is that they reduce your tax obligations. Preferably, you should try using all the tax credits you qualify for to reduce the amount of taxes you will incur during tax time.

What is more, if your business exceeds its tax credits for the prevailing tax year, you can apply them to the already filed tax returns. Better still, if you have excess tax credits in the present tax year, you can carry them forward to the subsequent tax year.

To make the most out of your tech company’s business tax credits, do the following:

Understand Your Tax Responsibilities

As an entrepreneur, you should be cognizant of all the local, state, and federal income taxes you might incur.

Your chosen business entity and the number of employees inform your tax obligations. Also, you might incur other local and state taxes depending on your local or state taxing authority.

Identifying all your potential taxes your business will incur will help you plan adequately and increase your business’ bottom line.

Know When to Involve an Accountant

Setting up a general business ledger is among the crucial things to do when launching a tech startup. Despite your activity level, involve an experienced bookkeeper to maintain your accounting records properly.

Accurate accounting records will come in handy when you are filing your annual taxes or seeking outside funding.

In the case of higher-level business activity, consider hiring a full-time internal accountant.

Understand the Available Business Tax Credits

There are a plethora of tax credits available to tech companies. The most popular tax credit is the research and development tax credit. You can use this credit to settle federal payroll taxes. Furthermore, it can be converted into cash in various states.

Understand how you can use these credits to your advantage to reduce your tax responsibilities.  

Given the uncertain business future, an overwhelming amount of taxes can sink your business. By taking advantage of available business tax credits, you’ll be better able to your tech business afloat.

Do you need help in filing your taxes? Contact us today to help you determine the available tax credits you qualify for. We will also advise you on how to cut your tax obligations for the benefit of your tech company.