While many entrepreneurs gripe about the tax burden government puts on small business, Uncle Sam does, on occasion, reward small business owners for doing the right thing. And when it comes to hiring veterans, the federal government provides tax incentives that encourage one of the best decisions a small business can make. But, in most cases, you’ll have to act fairly quickly in order to qualify for these tax credits.
The Returning Heroes Tax Credit
Signed into law on November 22, 2011, you only have until January 1, 2013, to qualify for this two-fold tax credit. The Returning Heroes credit is different based upon the length of the veteran’s unemployment.
· Short-term unemployment. If the veteran you hired was unemployed for at least four weeks, your business qualifies for a credit worth 40 percent of the veteran’s first $6,000 in wages (a $2,400 maximum credit).
· Long-term unemployment. If the veteran you hired was unemployed for longer than six months, your business qualifies for a credit worth 40 percent of the veteran’s first $14,000 in wages (a $5,600 maximum).
Before you begin the paperwork for this process, be sure to check if this veteran also qualifies for the Wounded Warrior Tax Credit, which involves much of the same paperwork.
The Wounded Warrior Tax Credit
If your hired veteran falls into the long-term unemployment category and has a service-related disability, he or she will qualify for this tax credit. The Wounded Warrior credit contains two components:
· Qualifying for the existing Work Opportunity Tax credit for a maximum $4,800
· Taking advantage of the new credit worth 40 percent of the veteran’s first $24,000 in wages (a $9,600 maximum)
Because these credits are really one in the same, the maximum credit available is $9,600—not $5,600 from the Returning Heroes credit plus $9,600 from the Wounded Warrior credit.
Completing the paperwork for this or the Returning Heroes credit involves a little work. To qualify for the credit, submit IRS Form 8850 on the day you offer the veteran a job (yes, you read that right).
State Government Tax Credits
Some states also provide a variety of tax credits for businesses that hire veterans in state. In Illinois, for example, the state’s existing veterans tax credit of 10 percent of annual wages recently jumped to 20 percent of annual wages. The Land of Lincoln also raised the wage cap from $1,200 to $5,000.
Scour your state’s revenues departments to see which credits you can obtain. You might be surprised how generous some states are with veterans credits.
Of course, hiring veterans offer numerous benefits, but we’ve never met an entrepreneur to turn down a reduced tax bill.
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