Small Business & StartupsTax

Tax Tuesdays: Training Tax Credits

By September 27, 2015 No Comments
training tax credits - acuity small business accounting
Welcome back to Tax Tuesdays. Not quite as exciting as Taco Tuesdays, but maybe more important.  This week we are tackling the benefits of training tax credits.
First thing to note is that ‘training’ tax credits are sometimes called ‘retraining’ tax credits. It just depending on how the politicians are spinning it at the time. Either way, these credits can go a long way in helping you survive tax season.
Last week we discussed the tax credits you get for creating new jobs.  Nearly all states give incentives for hiring new employees, but hiring is only half of the credit. These states are also providing incentives to train your new employees to do their jobs well. This is especially true if your state has recently experienced job losses in a particular industry. State legislators often focus on how they might train or retrain the work force to be ready for the latest technologies to attract new industries into the state. This agenda is great news for your business because it gives you a tax credits for each training program you provide. 
But, what if you don’t have a formal training program? You may be thinking ‘who can afford that anyway …Home Depot, Coca Cola, Microsoft’? Don’t forget that small business owners are the real movers of the needle in the economy, and legislators know this. So while attracting a big company to the state might make the newspaper, most of these tax credits are written to help entrepreneurs.
What does that mean for you? Both formal and informal training, including on-the-job training, are included in many of the tax credits. Remember that tax credits are significantly different than tax deductions. The common motto of deductions is “spend a buck to save a quarter”. But tax credits are a different and give you a one-to-one benefit: spend a dollar save a dollar in credits. This can translate to spending a dollar training your employees instead of spending a dollar paying state taxes.
Which costs are included? Direct training costs, employee salaries, and managers/trainers salaries are the three most common included in the tax credit.
Pro tip: If you don’t have enough income to be a taxpayer currently; don’t sleep on this tax credit. States will sometimes let you apply this tax credit directly to your state payroll tax liability. This usually takes an extra step of paperwork with the state but it pulls the cash impact from future years into this year. So if you are having a bad year, took a friends and family, angel, or venture investment, you are still able to benefit immediately from this credit.
While training credits are less common than new jobs credits, there are states trying to aggressively attract employers and trying to get a leg up on other states. You can always check your state’s website for their current tax incentives, but if you are in multiple states a good resource is the National Conference of State Legislators.
Find another credit or good website resource? Comment on our blog so we can crowdsource some best resources for other entrepreneurs!

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