The Wall Street Journal published a front page article (you may need to be a subscriber to read the full article) today on how many small and large businesses are passing up the chance to take advantage of certain tax benefits due to the hassles and costs associated with IRS compliance. We have seen many cases where the work involved in determining the amount of credit available can outweigh the benefit.
For example, the small business health tax credit for providing health insurance to your employees decreases as the number of employees increases and decreases as the employee’s salary increases. In order to calculate this credit, you need to plug in all of the earnings of your employees, the total hours worked by each employee, back out part-time employees, owner’s wages, etc. and after you do all of this work you might find out that you qualify for a $100 credit.
Many times we can ballpark what the credit will be and have the actual number come close. Other times, the calculation is so complicated that any estimated number would simply be a guess.
The bottom line is that some of these credits can be complicated and a hassle; however, in many cases the actual credit can be substantial and far outweigh the costs. Only by reviewing these credits with your tax advisor can you determine which are most effective for your tax situation.