Understanding Tax Credits to Maximize Your Savings

Tax credits offer a direct reduction in your tax liability, making them a powerful tool for lowering your overall tax bill. in this tax guide, weI’ll explore various tax credits available

Askia Roberts
May 15, 2024

1. Research and Development (R&D) Tax Credit

The Research and Development (R&D) Tax Credit is designed to incentivize businesses to invest in innovation and technological advancement. To qualify for this credit, businesses must engage in qualified research activities aimed at developing new products, processes, or software. Eligible expenses may include wages paid to employees directly involved in R&D activities, supplies used in R&D projects, and contracted research expenses.

2. Work Opportunity Tax Credit (WOTC)

The Work Opportunity Tax Credit (WOTC) is available to employers who hire individuals from certain targeted groups that face barriers to employment. These groups may include veterans, ex-felons, individuals receiving Supplemental Nutrition Assistance Program (SNAP) benefits, and others. Employers can claim a tax credit ranging from $1,200 to $9,600 per eligible employee, depending on the target group and the number of hours worked.

3. Small Business Health Care Tax Credit

The Small Business Health Care Tax Credit is designed to help small businesses and tax-exempt organizations afford the cost of providing health insurance coverage to their employees. To qualify for this credit, businesses must have fewer than 25 full-time equivalent employees (FTEs) with average annual wages below a certain threshold. The credit is calculated based on a percentage of the premiums paid for employee health insurance coverage purchased through the Small Business Health Options Program (SHOP) Marketplace.

4. Energy-Efficient Commercial Building Tax Deduction

The Energy-Efficient Commercial Building Tax Deduction, also known as the Section 179D deduction, is available to businesses that invest in energy-efficient building upgrades. Qualifying improvements may include the installation of energy-efficient lighting, heating, ventilation, and air conditioning (HVAC) systems, as well as building envelope upgrades. The deduction is based on the energy efficiency of the improvements and can result in significant tax savings for eligible businesses.

5. Employee Retention Tax Credit (ERTC)

The Employee Retention Tax Credit (ERTC) was introduced in response to the COVID-19 pandemic to provide financial relief to businesses that experienced a significant decline in revenue. Eligible employers can claim a refundable tax credit equal to a percentage of qualified wages paid to employees during periods of economic hardship. The credit is designed to encourage businesses to retain employees and continue operations during challenging economic times.

6. New Markets Tax Credit (NMTC)

The New Markets Tax Credit (NMTC) is a federal tax credit designed to stimulate investment in low-income communities and promote economic growth. The credit is available to investors who make qualified equity investments in certified Community Development Entities (CDEs) that, in turn, invest in businesses and real estate projects located in designated low-income census tracts. The NMTC can offset federal income tax liability and provide investors with a substantial return on investment.

Child and Dependent Care Tax Credit

The Child and Dependent Care Tax Credit is available to help offset the cost of childcare expenses incurred by working parents or guardians. To qualify for this credit, taxpayers must incur childcare expenses for children under the age of 13 or dependents with disabilities to allow them to work or actively look for work. The credit is based on a percentage of qualifying childcare expenses, up to certain limits based on income.

Rehabilitation Tax Credit

The Rehabilitation Tax Credit is designed to encourage the preservation and rehabilitation of historic buildings and structures. Eligible taxpayers can claim a tax credit equal to a percentage of qualified rehabilitation expenses incurred in the process of restoring a certified historic structure. The credit can offset federal income tax liability and provide a financial incentive for preserving our nation's architectural heritage.


Tax credits can be powerful tools for small business owners seeking to reduce their tax liability and improve their financial health. By understanding the various tax credits available and the eligibility criteria for each, you can identify opportunities to save money and invest in the future growth of your business.

At RTW Advisors, we specialize in helping small business owners navigate complex tax regulations and optimize their tax strategies. If you have any questions or need assistance with identifying and claiming tax credits for your business, don't hesitate to reach out to us.

Best regards,

Askia Roberts, CPA
RTW Advisors