Can a Business Get a Tax Refund Like Individuals Do?

Sometimes, you pay more of your income tax as an individual taxpayer. This may give you a tax refund from the federal government or your home state. But when it comes to businesses, you might wonder whether they receive tax refunds or not.

In this blog post, we’ll answer this burning question and show you how to maximize business tax refunds once your venture gets them.

Can a Business Receive Tax Refunds?

Depending on their structure and taxes, businesses may or may not receive tax refunds. Let’s examine these factors and how they determine whether companies receive tax refunds.

Business Structure

Choosing how a business will be structured is one of the most important steps you’ll take as a new business owner. You can start a sole proprietorship, partnership, corporation, or LLC.

Each type of business structure offers different advantages, including tax benefits. Generally, small businesses choose a structure with pass-through taxation. In this type of taxation, income is passed to an individual instead of their business, with the business owner paying the corporate tax.

That being said, pass-through businesses can’t get tax refunds. However, a personal income tax refund (and the Qualified Business Income deduction) may apply to these ventures. But if you really want to receive a business tax refund, you might want to consider forming a corporation, as it may be entitled to one.

Why Are Corporations Eligible for Tax Refunds?

Unlike pass-through businesses, corporations are taxed separately from their owners and pay corporate income tax to federal and state tax bureaus. Overpaying estimated taxes can give corporations an income tax refund.

Tax Type

It’s also possible to get a business tax refund if you pay specific types of taxes, including:

• Payroll tax – All business structures may be entitled to refunds if they withhold and pay payroll taxes. Tax authorities can return excessively paid tax to your business.
  • If your business accepts tips for its services, it may be eligible for a tip credit, reducing its income tax liability and resulting in a refund.
• Income tax – C corporations can get income tax refunds. If you own a pass-through business, like a partnership or LLC, you may get a personal income tax refund based on your total income.
• Sales or excise tax – If your business is subject to sales or excise tax and any of the following scenarios occur, it may receive a refund.
  • The business overpays its sales and/or excise taxes.
  • The value of company property is reassessed.

Note: Although you can get a refund if you’ve overpaid your business taxes, it’s not guaranteed. Consider speaking to a professional tax advisor or the IRS to see whether your business qualifies for tax refunds.

7 Ways to Maximize Business Tax Refunds

Once you receive a business tax refund, you can use it to ease your tax burden. Here’s how to maximize your tax refund.

Keep Accurate Records

Accurate records of business income and expenses make determining the tax deductions and credits available to your venture easier.

Record-keeping entails saving receipts, invoices, and bank statements and using them to show you’ve taken deductions during tax filings. Tax deductions and credits exclude expenses or financial activities from business taxes. Both can contribute to lower taxes and higher refunds.

Take Deductions

You can also take deductions to decrease your tax liability and earn the highest possible tax refund. Common examples of these deductions include office supplies and equipment, leasing and travel expenses, and marketing expenses.

Do keep in mind, though, that certain expenses can’t be subtracted from business taxes. Costs or payments such as bribes, charitable contributions, or lobbying expenses are reported on tax returns.

Apply for Tax Credits

While deductions lower your taxable income, tax credits reduce your overall tax bill. They decrease your tax liability dollar-for-dollar. If you receive a small business tax credit of $1,000, it’ll reduce your tax bill by the same amount.

Your business can apply for any of the tax credits listed below.

• Work Opportunity Tax Credit (WOTC) – for businesses with employees who’ve found gaining employment challenging
• R&D (research and development) tax credit – for businesses involved in R&D
• Credits under the SECURE 2.0 Act – Businesses offering 401(k) plans or those with an auto-enrollment feature can receive these tax credits.
• Small Business Health Care Tax Credit – for businesses wanting to invest in health insurance for their employees
• General Business Credit – The IRS offers this tax credit to small businesses that conduct certain activities. You’re required to file IRS Form 3800 to get general business credit.

If you plan to obtain small business tax credits, make sure to explore (and compare) available options for your venture. Remember to seek professional advice as well.

Donate to Charity

Charitable donations can help societal movements create significant change and reduce your tax liability. These contributions can be written off your taxable income to decrease your tax burden.

Look for tax-exempt institutions to ensure deductible donations. You can donate to nonprofit organizations, religious institutions, and selected federal entities.

Invest in Retirement Plans

It can also be wise to invest in a retirement plan. This way, you can save for retirement and lower your tax liability.

Taking advantage of retirement plans’ tax benefits can increase your tax refund. Thus, it’s best to research and compare available plans and their tax advantages.

Review Estimated Taxes

Whether you’re self-employed or running a business, you must pay estimated taxes throughout the year. These types of taxes require quarterly payments and are determined by your anticipated income for the year.

You can avoid penalties and interest charges from the IRS by paying the right amount of taxes every quarter. This also ensures you’re not paying less of your estimated taxes, helping you increase your business tax refund.

Consult Tax Advisors

Even if you’re filing business taxes for the first time, consider seeking professional tax advice. Taxation experts can help you:

• Find the specific deductions and credits your business may be subject to.
• Determine how much you should pay in estimated taxes quarterly.
• Calculate your total income and deductions for the year.
• Compute your tax liability with your estimated income and deductions considered.

Conclusion

So, can a business get a tax refund? The answer mostly depends on how the venture is structured and which type of taxes it pays. Understanding these factors is crucial to reducing the tax burden placed on your business.

To know whether you’re entitled to a business tax refund, please call NCH’s tax specialists at 1-800-508-1729 or contact us via our website today.

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.