Tax relief for small business owners overview
Small business tax relief refers to government schemes that can help you reduce the amount of tax you pay as a small business owner.
“It's important for business owners to explore these opportunities, plan for them, execute, and document both financially and with the proper narrative,” said Paul Brahim, senior vice president, financial advisor and managing director at Wealth Enhancement in Pittsburgh, Pennsylvania.
If this is your first year owning a small business, here’s what you need to know about tax relief and whether you qualify.
[I]t's important for business owners to explore these opportunities, plan for them, execute, and document both financially and with the proper narrative,”
» LEARN MORE: Best tax relief companies of 2026
Tax credits vs. tax deductions
Tax credits and tax deductions can both lower your tax bill, but they’re not the same. Here are the differences:
- Tax credits reduce your tax bill dollar-for-dollar. So if you qualify for a $1,000 credit, your tax bill goes down by $1,000.
- Tax deductions lower the amount of income subject to taxation, which means your actual savings depend on your tax bracket. For example, a $1,000 deduction might only save you $220 if you’re in the 22% tax bracket.
Who qualifies for business tax relief?
Most small businesses can qualify for some form of tax relief, but the exact eligibility requirements depend on the program you want to qualify for. In general, you may qualify for some form of business tax relief if you:
- Have employees
- Invest in innovation or product development
- Offer benefits like retirement plans or childcare
- Incur common business expenses like rent, software or marketing
Records to keep for claims
If you want to claim tax credits and deductions, make sure you keep good records of your business and financial documents. You’ll typically need:
- Receipts and invoices for business expenses
- Payroll records and employee documentation
- Certification forms for specific credits
- Detailed logs for things like mileage or home office use
» EXPLORE: How does tax relief work?
Tax relief credits small businesses can claim
Tax credits are more favorable than tax deductions because they directly lower the tax due, not just the amount of taxable income. Here are some of the most common tax credits small business owners can claim. Note that most of these are reported through the general business credit using Form 3800.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is available to employers for hiring individuals from certain targeted groups who have faced barriers to employment, such as veterans or long-term unemployed workers. With this tax credit, you could reduce employer federal tax liability by as much as $2,400 to $9,600 per new hire.
R&D tax credit
The R&D tax credit allows companies that engage in research and development activities to offset their business's tax liability. Eligible small businesses can apply up to $500,000 toward payroll taxes.
According to Lior Levy, an accountant, the R&D tax credit is underutilized because the application process is rigorous and requires detailed documentation.
“Many owners are so focused on day-to-day survival that they don’t have the bandwidth for the heavy lift,” said Levy. “It’s a missed opportunity because I’ve seen businesses take on expensive debt to cover operating costs, unaware they may have been eligible for potentially significant R&D tax credits that could have improved cash flow without requiring additional borrowing.”
[I]’ve seen businesses take on expensive debt to cover operating costs, unaware they may have been eligible for potentially significant R&D tax credits that could have improved cash flow without requiring additional borrowing.”
Retirement plan startup credits
Eligible employers with 50 or fewer employees can receive a credit covering up to 100% of the costs of starting a retirement plan due to the enhanced SECURE Act 2.0. There’s also an additional $500 annual credit for adding automatic enrollment features.
Other general business credits
Depending on your business activities, you may also qualify for these other tax credits:
- Employer-provided childcare credit
- Disabled access credit
- Industry-specific incentives
If your business is still struggling to cover what you owe even after applying credits, check out IRS tax forgiveness programs, which may be able to help you reduce or settle your debt for less than the full amount.
| Credit name | Who qualifies | What it offsets | Key form |
|---|---|---|---|
| Work Opportunity Tax Credit | Businesses hiring from targeted groups | Income tax | Form 5884 |
| R&D Tax Credit | Businesses with qualifying innovation activities | Income or payroll tax | Form 6765 |
| Small Employer Pension Plan Startup Credit | Employers with 50 or fewer employees | Startup plan costs | Form 8881 |
| Employer-Provided Childcare Credit | Businesses offering childcare benefits | 25% of childcare costs | Form 8882 |
| Disabled Access Credit | Small businesses adding accessibility | Up to $5,000 in costs | Form 8826 |
» FIND OUT: How the U.S. tax code works
Tax relief deductions to lower taxable income
Though tax deductions don’t reduce your tax bill dollar-for-dollar like tax credits do, they’re still worth claiming. Here are some tax relief deductions that could potentially lower your taxable income.
Home office and vehicle expenses
If you work from home, you may be able to deduct a portion of your rent or mortgage, utilities and maintenance, provided that you use the space exclusively for business. “If you run any part of your business from home, there’s a strong chance you qualify,” said Jamelle Nelson, CEO and founder of Nelson & Associates, an accounting firm in Long Beach, California. “The deciding factor on whether you qualify is whether you have a dedicated space used regularly and exclusively for business.”
You can also deduct vehicle expenses related to business use, including mileage, gas and maintenance.
» MORE: Who qualifies for tax relief?
Equipment and software write-offs
Section 179 of the IRS tax code and bonus depreciation let you deduct the full cost of qualifying equipment and software in the year you purchase it. This can include computers, machinery, office furniture and software tools.
Health insurance and HSA options
The self-employed health insurance deduction allows you to deduct premiums for yourself, your spouse and your dependents. You may also be able to contribute to a Health Savings Account, which can reduce your taxable income as well.
Retirement contribution deductions
If you own a small business, two of the most powerful retirement plans available to you are the Solo 401(k) and the SEP IRA, since you can deduct your contributions to lower your tax bill. The Solo 401(k) contribution limit for 2025 is $23,500 for employee salary deferrals and $70,000 for the combined employee and employer contributions. The SEP IRA contribution limit for 2025 is 25% of an employee's total compensation, up to $70,000.
Before submitting your tax return, make sure you’ve checked your eligibility for these commonly missed deductions:
- Startup costs (up to $5,000 in the first year)
- Business insurance premiums
- Professional services (accounting, legal fees)
- Advertising and marketing expenses
- Business meals (50% deductible)
- Travel expenses for business trips
- Education and professional development
- Office supplies and materials
- Business portion of phone and internet bills
- Bank fees and loan interest
- Licenses, permits, and professional memberships
If you still can’t afford to pay what you owe after claiming these deductions, the offer in compromise program may allow you to settle your tax debt for less than the full balance.
Tax relief filing steps and forms
To avoid any delays or penalties, make sure you’re using the correct forms when you’re claiming tax credits and deductions.
Form 3800 and supporting forms
If you’re claiming multiple credits, you’ll file Form 3800, which consolidates them into one total. Each credit is first calculated on its own form (Form 5884 for WOTC, Form 6765 for R&D, Form 8881 for retirement plans), then carried over to Form 3800.
Amended returns and carryforwards
If you missed a credit or deduction, you can file an amended return using Form 1120-X or an updated Schedule C. For payroll credits like the Employee Retention Credit, file an amended Form 941-X.
If you have any unused credits, you can typically carry them back one year to offset the prior year’s tax liability or forward up to 20 years.
Payroll tax credits and filings
Payroll-related credits come with a few extra hoops. For example, the Work Opportunity Tax Credit (WOTC) requires you to get certification from your state workforce agency and submit Form 8850 shortly after hiring an eligible employee.
Steps to claim business tax relief
- Identify qualifying activities and expenses.
- Gather required documentation and certifications.
- Calculate credit amounts using specific forms.
- Complete Form 3800 if claiming multiple credits.
- Attach supporting forms to business tax return.
- File amended returns for prior-year claims.
- Track carryforward amounts for future years.
- Maintain records for IRS audit requirements.
If you miss a deadline or file incorrectly, you could potentially face hefty penalties and a bigger tax bill than expected. If that happens, the IRS hardship program could help you get back on track.
» FIND OUT: How much does tax relief cost?
FAQ
How to pay less taxes as a small business owner?
To pay less taxes as a small business owner, make sure you’re taking advantage of every deduction and credit you qualify for, such as business expenses, home office, retirement contributions and the qualified business income deduction.
Are tax credits better than deductions for small businesses?
Yes. Tax credits are typically more valuable because they lower your tax bill dollar for dollar, whereas deductions only reduce your taxable income.
Can I claim both credits and deductions on the same expenses?
No. You usually can’t double-dip on the same expense. But you can claim different credits and deductions across different expenses in your business.
What happens if I don't use all my business tax credits in one year?
You may be able to carry it back one year or forward up to 20 years if you can't use the entire business tax credit this year.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Employment Security Department, "Work Opportunity Tax Credit for hiring hard-to-place workers." Accessed April 28, 2026.
- Internal Revenue Service, "Qualified small business payroll tax credit for increasing research activities." Accessed April 28, 2026.
- Automatic Data Processing, Inc., "How SECURE 2.0 tax credits help small businesses offer 401(k) plans." Accessed April 28, 2026.
- Internal Revenue Service, "Depreciation expense helps business owners keep more money." Accessed April 28, 2026.
- Intuit, Inc., "Deducting Health Insurance Premiums If You're Self-Employed." Accessed April 28, 2026.
- Fidelity Brokerage Services LLC, "401(k) contribution limits for 2025 and 2026." Accessed April 28, 2026.
- Fidelity Brokerage Services LLC, "SEP IRA contribution limits for 2025 and 2026." Accessed April 28, 2026.
- Internal Revenue Service, "Instructions for Form 3800 and Schedule A (2025)." Accessed April 28, 2026.
