Over 2.4 million small businesses are owned by military veterans, according to the Small Business Administration. In fact, a recent SBA study found military service has a significant impact on self-employment: Veterans are 45 percent more likely than non-veterans to be self-employed.
For the self-employed, finding the right business and tax deductions to lower liabilities is important for proper cash flow. With this in mind, here are the top four tax breaks and strategies for veteran-owned small businesses:
1. Moving Expense Deduction: If you have unreimbursed moving costs to a new location, you may be able to deduct some of those costs on Form 3903. Speak with your CPA or Enrolled Agent to get more information, ensure your eligibility, and determine how much you may be able to deduct.
2. Reservists’ Travel Deduction: If you’re a reservist whose reserve-related duties take you more than 100 miles away from home, you can deduct your unreimbursed travel expenses – even if you don’t itemize your deductions.
3. Uniform Deduction: You can deduct the costs of certain uniforms you can’t wear while off duty. This includes the costs of purchase and upkeep. You are also required to reduce your deduction by any allowance you receive for these costs.
4. Work Opportunity Tax Credit (WOTC) for unemployed people and veterans: Hiring veterans also provides tax advantages and the credits can be sizable. But look closely at your situation, because there are a number of variables to consider:
- Qualified Long-term Unemployment: If you hire a veteran that begins work between January 1, 2016 and December 31, 2019 – and the individual is employed for 27 consecutive weeks or more and works at least 120 hours – you can claim 25 percent of first-year wages paid up to $6,000 for a maximum income tax credit of up to $1,500.
Additionally, if your new hires work 400 hours or more, you can claim 40 percent of first-year wages up to $6,000 for a maximum income tax credit of up to $2,400.
- Short-term Unemployment: You may be eligible to receive a credit of 40 percent of the first $6,000 of wages (up to $2,400) if you hire veterans who have received unemployment benefits for at least 4 weeks.
- Long-term Unemployment: You may be eligible to receive a credit of 40 percent of the first $14,000 of wages (up to $5,600) if you hire veterans who have received unemployment benefits for longer than 6 months.
- Veterans with Services-Connected Disabilities: This is part of the existing Work Opportunity Tax Credit for veterans with service-connected disabilities who are hired within one year of being discharged from the military. The credit is 40 percent of the first $12,000 of wages (up to $4,800).
- Long-Term Unemployed Veterans with Services-Connected Disabilities: There’s also a new credit of 40 percent of the first $24,000 of wages (up to $9,600) for companies that hire veterans with service-connected disabilities who have received unemployment benefits for longer than 6 months. The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 for tax-exempt organizations.
By using the right tax strategy, you can lower your taxes as small business owner. Make sure you speak with your CPA, enrolled agent, or tax advisor to check if you and your business are eligible for any of these tax credits and deductions.
Related Article: Service Members & Veterans
Related Article: 7 Resources for Military Veteran Small Business Owners
Related Article: Why Veterans Make Great Entrepreneurs
Ebong Eka is no stranger to the world of personal finance. As a certified public accountant and former professional basketball player he offers a fresh perspective to small business planning and executing. With over fifteen years of accounting, tax & small business experience with firms like PricewaterhouseCoopers, Deloitte & Touche and CohnReznick, Ebong provides practical money solutions tailored to the everyday person, the aspiring entrepreneur or the small business owner.
Ebong is the founder of EKAnomics, a sales, pricing and leadership firm. He is also the founder of Ericorp Consulting, Inc., a tax and management consulting firm. Ebong is the author of “Start Me Up! The-No-Business-Plan, Business Plan.”
Bank of America, N.A. engages with Ebong Eka to provide informational materials for your discussion or review purposes only. Ebong Eka is a registered trademark, used pursuant to license. The third parties within articles are used under license from Ebong Eka. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.
Bank of America, N.A. Member FDIC. ©2017 Bank of America Corporation