 Income tax 2023-2024. Business credits. Get ready and some coffee, because contrary to popular belief, you need a strong imagination to do income tax preparation 2023-2024. Most of this information, first a word from our sponsor. Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers they Don't want to be seen with us, but but that's okay Whatever because our merchandise is better than their stupid stuff. 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Okay, it's an improvement If you would like a commercial free experience consider subscribing to our website at accounting Instruction.com or accounting Instruction.thinkific.com who comes from publication 334 tax guide for small business for individuals who use schedule C tax year 2023 which you can find on the IRS website at iris.gov iris.gov Remember in the first half of the income tax formula is basically a funny income statement Most income statements having income minus expenses resulted in net income Here having income minus various deductions resulting in taxable income Noting that the sole proprietorship schedule C rolls into line one income Which is a little funny considering the schedule C itself is basically an income statement Having business income minus business expenses Otherwise known as business deductions resulting in in essence net business income that rolls into line one Income of the income tax formula which is reflecting the calculation behind the form 1040 this being page one of the form 1040 Schedule C rolling into line number eight additional income from schedule one This is the schedule one additional income and adjustments to income We have part number one schedule C rolling into line three business income or loss from the schedule C This is a schedule C profit or loss from business Which has a profit and loss P&L or income statement format? Income minus Expenses all right Let's look at the general business credits now Noting that we are basically going to list out these credits because they are often going to be specific towards Specific types of industry so you want to be aware of them and then as you're thinking about your business If you're doing tax preparation or running a business You want to say do these credits apply to this particular business and or are these kind of industries that I'm specialized in going to be subject to these types of credits and if so then you need to do more specialized research and those Particular areas specializing within them so your general business credit for the year Consists of your carry forward of business credits from prior years plus the total of your current year business credits So credits we note that they're good like deductions and that way credits are similar to deductions Remembering that taxes are all kind of upside down and backwards in other words Normally the income statement we like income and we don't like expenses But for taxes we like the expenses because those are the deductions the credits Basically are going to give us a benefit similar to the deductions But typically a larger benefit if you're talking about a dollar credit versus a dollar deduction For example the dollar credit is usually worth more Because the dollar deduction will simply be lowering the taxable income which will then have a tax rate applied on it Whereas the dollar credit might actually give us the whole dollar of a benefit back Now if we can't get something like a deduction We've seen in the past or a credit in the current year because of a phase out or something like that Then the idea would be can I carry it backwards? Meaning take it back to prior years where I can take it in those time frames or possibly carry it forward Into future years anytime we have more complex tax returns that involve credits or Carry backs and carry forwards I would recommend using the same tax software from year to year and if picking up a new client or new tax software Entering the data from the prior tax year into the prior software year and then Proforming it forward so the carry forward Will be assisted with the use of the software so in addition your general business credit for the current year may be increased Increased later by the carry back of business credits from later years you subtract these credit directly from your tax So useful items form and instruction so to get more information on this stuff You could go to the forms and instructions for 3800 general business credit which you can of course find on the iris website iris.gov iris.gov and Forms and instruction 6251 Alternative minimum tax Individuals all right business credits all of the following credits are part of the general business credits The form you use to figure each credit is shown in Parentheses, so you will also have to complete form 3800 if any of these credits apply some credits have expiration dates Check the instructions for each credit to make sure it is available for 2023 so again, we'll basically list out the credits here which might be specific towards specific Industries oftentimes and then if you think that credit is applicable to you You want to drill down doing more research possibly looking at the related forms and Instructions and finding them on the iris website doing more research from there We've got the alternative fuel vehicle Refueling property credit that's form 8 9 1 1 this credit applies to the cost of any qualified fuel vehicle Refueling property for more information C form 8 9 1 1 So if you're dealing with situations where you have large vehicles that need Refueling then you will most likely be dealing with that kind of information and will want to specialize in the tax Consequences related to it biodiesel renewable diesel or sustainable Aviation of fuel credits form 8 8 6 4 so same kind of idea So if you're in certain types of industry you might still need the diesel fuel Which might be you know just better for those types of vehicles for whatever reason although again obviously you're dealing with Like pollution legislation and so on that's going to be critical about those types of things So you end up with all these kind of specialty Regulations when you're dealing in those industries for more information you could see form 8 8 6 4 Biofuel producer credit that's going to be form 6 4 7 8 So any time we're dealing with any kind of fuel situation You would imagine the IRS because they're really hyper focused on this environmental things these days They're going to try to restrict possibly fuel use in general which you're going to have to deal with those kind of Legislations and possibly look for alternative types of fuel usages possibly incentivizing the use of different types of fuel Therefore if you if they can disincentivize Diesel for example, and maybe like a biofuel incentivize that they might do that often times The legislation sadly lags behind the technology and in my opinion often acts as more of a hindrance Towards achieving better environmental goals due to the clunkiness of the legislation, but That's you that's what we have to deal with that's what's going to end up happening So for more information there, you could see form 6 4 7 8 So then we have the carbon oxide sequestration credit form 8 9 3 3 So obviously again this kind of has to do with the idea of pollution because the greenhouse gases Carbon carbon oxide or I think is going to be dealing with that So again, that'll be specific towards particular industries this credit is for carbon oxide That is captured at a qualified facility and disposed of to secure Geo geological storage or used in a qualified enhanced oil or natural gas recovery Project, so one of the things they're trying to do with this carbon is possibly take it out of the air Recapturing it storing it somewhere putting it underground or maybe they can shoot it into space at some point or something Or possibly using it alternatively. So for more information, you could see form 8 9 3 3 credit for employer social security and Medicare taxes paid on certain employee tips So that's going to be form 8 8 4 6. This is another area where I think the iris has really kind of I think kind of overstepped on the on certain business models that deal with tips Because it used to be that if you had a restaurant or something like that You can basically hire people almost as contractors to serve in the restaurants and make their money with tips and You wouldn't have and you could say hey look, that's their business They make tips. I make the food and it is what it is and But obviously that's not what the government likes They like a situation where the person receiving the tips has to report the tips as income And it's hard to track the income because who are they going to 1099 if they're getting tips directly from Customers who aren't writing those tips off as business expenses and therefore aren't required So they want the tips to be governed by the employer, which which kind of destroys that business model So if you deal with tips, that's why notoriously tip-based businesses clubs and restaurants The iris I don't think they like them very much, right, right, but but you have to see you have to do you have to do your whole dance On compliance with regards to tips and those types of industries to get a business model that works and that is in compliance So this credit is generally equal to your employers portion of Social Security and Medicare taxes paid on tips received by Employees on food and beverage establishments where tipping is customary So the credit applies regardless of whether the food is consumed or Off your business premises on or off your business premises. So for more information there you can see form 8 8 4 6 Credit for employer differential wage payments form 8 9 3 2 This credit provides businesses with an incentive to continue to pay wages to an employee Performing services on active duty in the uniform services of the United States for a period of more than 30 days so obviously if someone Goes on to active duty then They might not be able to keep their job and whatnot But the but the government is trying to have an incentive to have them keep the employment and we have that credit coming about So for more information you could see form 8 9 3 2 for that credit for employer provided child care Facilities and services form 8 8 8 2 This credit applies to the qualified expenses you paid for employee child care and qualified expenses You paid for child care resource and referral services So now you have the child care, which of course that what's the incentive behind that credit? You would think more you know women or two people in the workplace or possibly single Family single-parent homes, you know being able to work where they need the child care So the government is trying to give an incentive then for child care providing through basically credits So for more information there you've got the for Form 8 8 8 2 credit for increasing research activities form 6 7 6 5 this credit is designed to encourage businesses to increase the amounts they spend on research and Experimental activities Including energy research now this one, you know, obviously the idea of a business when it's long term in Nature is that you can do the research and development which often comes up with nothing But if you hit if you hit something on the research and development Then you want to be able to make revenue in the future the classic example of this is like drug companies Which are constantly getting beat up sometimes for good reason of course pharmaceutical companies for example But the business model of the pharmaceutical country company is of course research and development which is costly and often doesn't pay off and and when it does pay off It has to pay off or else why would you do the research and development and that's why the United States? gets a lot of flak a lot a lot of People complain about about the cost of the medicine which I can understand and so on But at the same time obviously the research and development needs to pay off or else no one's going to do it So so you have this kind of kind of issue. That's an extreme case though Similar things happen with like Software develop and it's stuff like that if you develop the software and someone just steals it right after you develop it You have no copyright laws or anything like that China just steals it or something then that's going to really Disincentivize research because the idea of getting the property is to have the property that would be like like trying to get food From farmers but every time a farmer purchases a piece of property Someone just steals it and we have no property rights We've eliminated property rights because they're evil for whatever reason. Well, that means no one's going to try to Grow some avocados on their farm because people are just going to steal all the avocados right after they start growing them And then you can't what are you going to do right? So that I think that's the major incentive, but Anyways, so you have incentives to try to get people to do research So for more information there you can see if public you can see form six seven six five So you got the credit for small employer health insurance premiums form eight nine four one This credit applies to the cost of certain health care coverage you provide to certain employees Now this one of course is part of that situation where health care has often been tied to Corporations so employees often get their health care through the employer It used to be largely because the group plans were cheaper and therefore if you can get a group plan The insurance companies would often be able to get a cheaper plan But then of course all these legislations have have happened Related to health care and so you've you've got this situation of small businesses then saying well if I have a small business How can I compete with these health care benefits and so on? So I can stay afloat on the small business and so and so for more information there You can see form eight nine four one credit for small employer pension plan startup costs auto enrollment and military spouse participation form eight eight eight one so this credit applies to pension plan startup costs of a new qualified defined benefit or defined contribution plan Including a section 401k plan simple plan or set plan So many small businesses if you're a schedule C type of business once again One of the benefits from an employer employee situation is the setup of a 401k plan and That's a big benefit because the tax law has has gotten into the system and Basically said well if you put money into these 401k plans, then you don't have to pay taxes on it Which is a huge benefit and that's really the benefit often times that wealthy individuals are trying to increase the dollar amount of Because you get this huge deferral of taxes, which you know, but obviously if you're a lower-income individual You don't have the cash flow to put into the plan Even if it was available to you and if you're a small business Then you can't put money into the 401k plan in the same way You might be able to use an IRA but the IRA has much lower limits in terms of how much you can put into the IRA and Therefore you might want to start up your own small business 401k plan But the startup costs are in are high as well as the management costs And so they have other plans the simple plan and a step plan designed specifically for small businesses and again We have basically incentives for small businesses to try to get some of the tax benefits that are now being attributable to the large businesses with regards to The 401k plans and whatnot and and you might say hey look these benefits are being provided to the employees and not to the Employer, but I just want to just point out that that's not exactly how it works We're in an economy. So if the employee error can provide money compensation to the employee that Goes further that benefits both the employee and the employee error, you know, because obviously if I can give my employee $10,000 and it's tax-free Then then then they're gonna want to be able to work for me more than if I give them $10,000 But they have to pay 2,000 of it to taxes in some Way shape or form so so so you can you can then ask the question. Well, who's really paying Who's really benefiting? Well, both people are benefiting both the employee in the plan in case for more information You can see publication 560 retirement plans for small business. All right So then we have this disabled access credit form 886 to this credit is a non-refundable tax credit For an eligible small business that pays or incurs expenses to provide access to persons who have Disabilities so if you have like a place of employment and There's stairs or something there and you put a walkway in it so that you can have a wheelchair go up it or Possibly instead of having stairs inside you you insert an elevator or something like that Then you might look into the disability access credit So you must pay or incur the expenses to enable your business to comply with the Americans with Disability Act of 1990 for more information. You could see form 886 to or I'm sorry 8 8 2 6 I went dyslexic there distilled as spirits credit form 8906 This credit is available to distillers and importers of distilled spirits and eligible wholesalers of distilled spirits I'm not sure exactly why the distilled spirits people Get a credit. I'm not totally up to date on exactly the rationale for that one seems kind of funny But there it is we need our distilled spirits and they are they obviously they often overtax the distilled spirits on The sales tax side of things and excise tax. So maybe they're either and I don't know but for more information there You can see publication 8906 form 8994 This credit applies for wages paid to qualified employees. Well, they are on family and medical leave Subject to certain conditions. So for more information, you can see form 8994 Then you've got the empowerment zone employment credit form 8 8 4 4 You may qualify for this credit if you have employees and are engaged in a business in an empowerment zone For which the credit is available. In other words, you have certain locations that have lower income locations Generally, and if you hire people that are located in those areas, then possibly there's a credit available there it gets kind of complicated and messy because You have to verify that they live in that area and so and and all that kind of stuff But there's that one. I've dealt with that one a little bit in my in the past It's been there for a while now. So for more information, you can see form 8 8 4 4 Energy efficient home credit. Okay. So now we've got the form 8908 This credit is available for eligible contractors of certain homes So for use as residents. So clearly that's going to be specific towards our particular industry once again looking at these Environmental types of laws trying to have home builders build homes that are more energy and efficient again in my mind Like you might look at all these kind of these kind of laws and sell aren't they virtuous that they're putting these laws in place But it seems to me that energy efficiency if we get good at it Should carry its own weight due to increased technology So in other words if people are able to buy and make more energy Efficient homes people will want more energy efficient homes because they use less energy and that's cheaper Right. So so it seems to me the technology is the thing that's going to drive us there and oftentimes these laws Although they look virtuous are actually Detrimental because the way they instrument the way they put them in place is is they could actually block innovation, right? And anyway though but for more information you can see form 8908 Investment credit form 3468 the investment credit is the total of the several credits for more information there You can see form 3468. We've got the low software diesel fuel production credit form 8896 Obviously that's somewhat specialized for sold for diesel fuel. So for more information you can see that form 8896 You've got the low-income housing credit form 8 5 8 6 This credit generally applies to each qualified low-income building placed in service after 1986 so once again, we're talking about people make you know production of buildings and whatnot and possible type of incentives For that so for more information you can see form 8 5 8 6 We've got the new markets credit form 8 8 7 4 This credit is for qualified equity investments made in qualified community development entities for more information Form 8 8 7 4 then you've got the orphan drug credit. So form 8 8 2 0 This credit applies to qualified expenses incurred in testing certain drugs for rare diseases and conditions So for more information, you've got form 8 8 2 0 once again specialized kind of credit there Now we've got the clean vehicle credit form 8 9 3 6 back to the theme of The environment so these credits are for certain clean vehicles placed in service during the tax year So again to me like the on my my thinking of this is we're going to get clean energy Through innovation right not through the the tax codes probably not gonna not gonna be the thing that pushes this over It's the people like the actual Tesla's out in the world that are making the car Not likely because of the tax breaks per cert per say, but because there's demand You know for it and and once the technology hits Then I think it'll be marketable and that's what's going to take us in any case Qualified reload truck maintenance e credit form 8 9 0 0 This credit applies to qualified railroad truck maintenance Expenditures paid or incurred during the tax year. So for more information there you got form 8 9 0 0 You've got the renewable electricity production credit form 8 8 3 5 This credit is for renewable energy sources. So once again, there's our theme again renewable energy sources often a Confusing term again because I don't think a lot of people really understand what it means to be you know Renewable and you know the kind of difference between creating energy That can be used and storing that energy and so on and that the complications and those processes but This credit is for renewable energy sources Produced in the United States or US territories from qualified energy resources at a qualified facility So a lot of qualifications in this credit. So for more information though, you can see form 8 8 3 5 You've got the work opportunity credit form 5 8 8 4 This credit provides businesses with an incentive to hire individuals from targeted groups that have a particularly high Unemployment rate or other special employment needs. So again the idea here incentivizing people to hire From groups, they might not otherwise hire from Possibly because they have a they're from a certain location, which is a low income possibly or possibly Because they have records like hiring Criminals or something like that Could be some of the insistence that are at play there But in any case for for more information, you could see form 8 5 5 4