As a business owner, you’re constantly looking for ways to improve your bottom line, boost efficiency, and fuel growth. While you focus on revenue and operations, one of the most powerful financial tools often goes overlooked: tax credits. Unlike deductions, which only reduce your taxable income, tax credits provide a dollar-for-dollar reduction of your actual tax liability. This makes them incredibly valuable.
Many business owners assume these credits are only for large corporations or highly specialized industries. The reality is that companies of all sizes and sectors can qualify for significant savings. By understanding what’s available, you could be leaving tens or even hundreds of thousands of dollars on the table.
This guide will highlight some of the most valuable and commonly missed tax credits that your business could be eligible for in 2026.
1. The Research and Development (R&D) Tax Credit
The R&D Tax Credit is one of the most powerful incentives available to American businesses, yet it is also one of the most underutilized. The name is slightly misleading; you don’t need a team of scientists in lab coats to qualify. This credit is designed to reward companies for developing new or improved products, processes, software, formulas, or techniques.
If your business is engaged in activities aimed at solving technical challenges, you may be eligible. This applies to a wide range of industries, including manufacturing, software development, engineering, architecture, food science, agriculture, and many more.
Eligibility Criteria: The Four-Part Test
To qualify, an activity must meet all four of the following criteria:
- Permitted Purpose: The activity must aim to create a new or improved product or process that results in enhanced function, performance, reliability, or quality.
- Technological in Nature: The work must rely on principles of hard sciences, such as engineering, computer science, physics, chemistry, or biology.
- Elimination of Uncertainty: You must demonstrate that you attempted to eliminate uncertainty about the development or improvement of the product or process.
- Process of Experimentation: You must show that you evaluated one or more alternatives to achieve the desired result through modeling, simulation, systematic trial and error, or other methods.
Potential Benefits
The R&D credit can be used to offset both income tax and, for some small businesses and startups, payroll tax. Qualifying new businesses (less than five years old with less than $5 million in gross receipts) can apply up to $250,000 of the credit against the employer’s portion of Social Security taxes. This is a game-changer for early-stage companies that may not yet have an income tax liability.
2. The Work Opportunity Tax Credit (WOTC)
Is your business committed to hiring a diverse workforce? The Work Opportunity Tax Credit (WOTC) rewards employers who hire individuals from certain targeted groups who have consistently faced significant barriers to employment. This federal credit not only helps your community but can also generate substantial tax savings.
Who Qualifies as a Targeted Group Member?
The WOTC is available for hiring individuals from groups such as:
- Qualified veterans (including unemployed or disabled veterans)
- Recipients of certain government assistance programs (e.g., SNAP, TANF)
- Ex-felons
- Individuals living in designated communities (e.g., Empowerment Zones, Rural Renewal Counties)
- The long-term unemployed
Claiming the Credit
The process for claiming the WOTC is time-sensitive and requires strict adherence to procedure. To be eligible, you must obtain certification that the employee is a member of a targeted group. This involves submitting IRS Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, to your state workforce agency within 28 days of the employee’s start date.
The credit amount is calculated as a percentage of the qualified wages paid to the employee during their first year. It can be up to $9,600 per employee, depending on the specific targeted group and the number of hours worked.
3. Other Overlooked Business Tax Credits
Beyond the R&D Credit and WOTC, there are additional credits that may apply to your business, depending on your activities and industry. Some examples include:
- Disabled Access Credit: For small businesses that incur expenses to provide access to persons with disabilities.
- Credit for Employer-Provided Childcare Facilities and Services: For businesses that provide childcare facilities or services to employees.
- Small Employer Health Insurance Credit: For eligible small businesses that provide health insurance coverage to employees.
- New Markets Tax Credit: For investments in certain low-income communities.
Each of these credits has specific eligibility requirements and calculation methods, but they can provide meaningful tax savings if your business qualifies.
How to Claim Your Credits
Claiming tax credits requires meticulous documentation and a clear understanding of the rules. The first step is to identify which credits your business activities might qualify for. From there, you will need to:
- Gather Documentation: Maintain detailed records of all qualifying expenses, wages, project timelines, and employee certifications.
- Complete the Correct Forms: Each credit has its own specific IRS form (e.g., Form 6765 for the R&D Credit, Form 5884 for the WOTC).
- Consult a Professional: Tax credits are a complex area of the tax code. Working with a tax professional who specializes in business credits is the best way to ensure you are maximizing your claim and complying with all IRS requirements.
Don’t let these opportunities pass you by. Take the time this tax season to evaluate your business activities against the criteria for these valuable credits. At Sorren, we help businesses navigate the complexities of the tax code to uncover savings and fuel future growth. By taking a proactive approach, you can turn your tax liability into a strategic advantage.
