Business tax credits are tax incentives used by the government to support businesses and to reward them for engaging in certain activities. Concretely, when you apply for a government tax credit, you can subtract that amount from the taxes you owe the government.
You are not alone if you are wondering why businesses should apply for a government tax credit. Business owners can feel overwhelmed when they file their tax returns, and some might think applying for tax credits could waste their precious time. However, a tax credit program comes with many benefits. For example, the SR&ED tax credit offers numerous advantages for businesses in Canada.
But here are five reasons why applying for a government tax credit is worth the time and effort.
Reason #1: Tax credits aim to reduce the amount of money a business owes the government
Your business might not qualify for all the government’s tax credits, but you should apply for those you qualify for. Tax credits reduce the amount of money you owe the government, which leaves you with more money to invest in your business.
One interesting thing about tax credits is that if you earn more credits than what is permitted during one tax year, you should be able to apply them to the previous tax year or the next. Technically, this means your business might never stop saving money on taxes.
Keep in mind there are two types of tax credits:
- Refundable tax credits will come to your business as a cash refund if they represent more than what your business owes in taxes.
- Non-refundable tax credits can only be redeemed by reducing the amount of taxes owed by your business.
Reason #2: The money they save allows them to invest back in their businesses
When business owners save money on their taxes, they often invest it in their business by upgrading their facilities or equipment. There are government tax credits that specifically reward these upgrades.
If you plan to grow and expand your business, applying for a government tax credit will help support that growth. If you have been considering replacing outdated machinery with new equipment, a government tax credit can help you reach that goal.
You could also use the money you save on taxes to train your employees and improve their knowledge and skills. Investing in your facilities and your people will make your business more profitable in the long run.
Reason #3: They can grow by investing in research and development
Some government tax credits are offered to businesses that engage in research and development. This is a way to reward them for their work and to encourage them to keep investing in research and development to grow their business and advance their industry.
Unfortunately, many business owners don’t apply for this tax credit because they think it doesn’t concern their work. The truth is that research and development are not activities that only concern scientists and engineers working in a laboratory.
As long as your employees work on solving a technological problem, your business could qualify for a tax credit that encourages research and development.
Reason #4: It becomes easier for businesses to go green and help protect the environment
Businesses should apply for a government tax credit because it can encourage them to ramp up their efforts to go green.
If you have recently made some changes to your facilities and operations so your business could be more environmentally-friendly, you could be rewarded with a government tax credit.
For example, some tax credits are offered to businesses that choose solar or wind energy or those that transition to using electric vehicles.
Any project that aims to make your business more energy-efficient could qualify you for a government tax credit. Going green is good for the planet, and it’s good for your bottom line as well.
Reason #5: They are better equipped to support their communities by hiring more employees
Finally, some tax credits are available for businesses that decide to add minorities and people facing different barriers to employment to their team.
For example, you could qualify for a tax credit if you hire young employees, employees from an ethnic minority, or employees who have disabilities. Such a tax credit can better equip your business to support your community and those who have helped you grow.
As you can see, there are good reasons why businesses should apply for a government tax credit. If you think your business could qualify for one or more tax credits, don’t hesitate to do some research so you can know how to apply.
However, tax credits can help your business grow if you claim them.