A tax deduction reduces the income on which tax is calculated. A tax credit reduces the actual tax owed — dollar for dollar. A $5,000 deduction saves a business owner in the 24 percent bracket $1,200. A $5,000 credit saves $5,000 regardless of bracket. That distinction makes tax credits among the most powerful tools in small business tax planning, yet they are among the most consistently overlooked.
This guide covers the federal and Utah state business tax credits most relevant to small and mid-sized Utah businesses, explains how to qualify for each, and clarifies the interaction between credits and deductions when both apply to the same expenditure.
How Business Tax Credits Work
Refundable vs. Non-Refundable Credits
A non-refundable credit reduces your tax liability to zero but no further. If your tax bill is $3,000 and you have a $5,000 non-refundable credit, you owe nothing — but the remaining $2,000 of credit is lost (unless it can be carried forward or back).
A refundable credit can reduce your tax below zero, resulting in a refund. The Employee Retention Credit was refundable; most small business credits are non-refundable.
Credit Carryforwards
Most business credits that cannot be used in the current year can be carried forward up to 20 years. This means a credit generated in a low-income year remains available to offset future tax liability — making documentation and timely filing critical even when current-year taxes are minimal.
The Interaction Between Credits and Deductions
When both a deduction and a credit are available for the same expense, you typically must reduce the deduction by the amount of the credit. For example, if you claim the Work Opportunity Tax Credit for wages paid to a qualifying employee, those same wages must be reduced by the credit amount before deducting them as a business expense.
Federal Business Tax Credits for Small Business
1. Research and Development (R&D) Tax Credit — IRC Section 41
The R&D credit is available to businesses that develop new or improved products, processes, software, formulas, or techniques. The credit equals 20 percent of qualified research expenditures above a base amount.
Qualifying activities for Utah businesses include:
- Developing custom software or apps for clients or internal use
- Designing or improving manufacturing processes
- Creating new financial products, risk models, or compliance tools
- Agricultural research and development
- Engineering design work for construction projects
Small Business Payroll Tax Election: Qualified small businesses (under $5 million in gross receipts and fewer than five years old) may apply up to $250,000 of the R&D credit against payroll tax liability rather than income tax. This is transformative for early-stage companies that have little income tax but significant payroll.
2. Work Opportunity Tax Credit (WOTC)
WOTC provides a credit of up to $9,600 per qualified new hire from ten targeted groups, including veterans, long-term unemployment recipients, SNAP recipients, residents of Empowerment Zones, and ex-felons.
Process: You must submit IRS Form 8850 to the Utah Department of Workforce Services within 28 days of the new hire’s first day. Late submissions are not accepted. After certification, the credit equals 25–40 percent of first-year wages (up to $6,000 for most groups, $24,000 for long-term family assistance recipients).
WOTC is non-refundable but carries forward 20 years and back 1 year.
3. Disabled Access Credit — IRC Section 44
Small businesses (gross receipts under $1 million or fewer than 30 full-time employees) that make expenditures to accommodate persons with disabilities may claim a credit of 50 percent of eligible access expenditures between $250 and $10,250 — a maximum credit of $5,000 per year.
Qualifying expenditures include: installing ramps and accessible restrooms, adding audio and visual aids for hearing- and visually-impaired employees or customers, removing barriers, and providing accessible parking.
4. Small Employer Health Insurance Credit — IRC Section 45R
Small employers with fewer than 25 full-time equivalent employees, average wages below $62,000 (2024), and who contribute at least 50 percent of employee-only premiums through a SHOP Exchange plan may claim a credit of up to 50 percent of premiums paid (35 percent for tax-exempt employers).
The credit is available for two consecutive years. After two years, no further credit is available, creating a planning window.
5. Employer-Provided Child Care Credit — IRC Section 45F
Employers that provide or pay for child care facilities or resource and referral services for employees may claim a credit of 25 percent of qualified child care expenditures plus 10 percent of qualified child care resource and referral expenditures, up to $150,000 per year.
6. Retirement Plan Startup Credit — IRC Section 45E
Small businesses with 100 or fewer employees that establish a new qualified retirement plan (SEP-IRA, SIMPLE IRA, or 401(k)) may claim a credit of 50 percent of plan startup costs, up to $5,000 per year for the first three years of the plan.
SECURE 2.0 increased this credit to 100 percent for employers with up to 50 employees. An additional credit of up to $1,000 per employee is available for employers that add an automatic enrollment feature to a 401(k) or SIMPLE IRA.
7. SECURE 2.0 Military Spouse Credit
A new credit under SECURE 2.0 provides small employers (100 or fewer employees) with a tax credit of $200 per military spouse employee, plus up to $300 for employer contributions to a qualified retirement plan on their behalf. Available for three tax years beginning in 2023.
8. Alternative Fuel and Electric Vehicle Credits
Businesses purchasing electric or plug-in hybrid vehicles for business use may qualify for the Commercial Clean Vehicle Credit — up to $7,500 for vehicles under 14,000 pounds and up to $40,000 for larger commercial vehicles.
Installing EV charging equipment at a business location qualifies for the Alternative Fuel Vehicle Refueling Property Credit of 6 percent (30 percent for qualifying energy communities), up to $100,000 per property.
Utah State Business Tax Credits
Utah Enterprise Zone Credit
Businesses that locate or expand in a designated Enterprise Zone and create new full-time jobs may claim a credit of $750 per new job, with an additional $750 if the new employee’s wage exceeds 125 percent of the county average wage.
Utah Research and Development Tax Credit
Utah provides its own R&D credit equal to 5 percent of qualified research expenditures (6.5 percent for certain businesses). This credit is in addition to the federal R&D credit and requires a separate calculation based on Utah-source research activities. The credit is non-refundable but carries forward 14 years.
Utah Clean Air Credit
Businesses that purchase or convert vehicles to alternative fuel use in Utah may claim a credit of up to 35 percent of the incremental cost of purchasing an alternatively fueled vehicle or the cost of converting a conventional vehicle to alternative fuel.
Low-Income Housing Tax Credit (LIHTC)
Utah allocates federal Low-Income Housing Tax Credits to developers of affordable rental housing. FJ & Associates has specific expertise in LIHTC accounting — see our non-profit and housing services page.
Credits Most Commonly Missed by Utah Small Businesses
| Credit | Typical Small Business Scenario | Max Annual Benefit |
|---|---|---|
| WOTC | Hiring veterans or unemployment recipients | Up to $9,600/hire |
| R&D Credit | Custom software development or process improvement | Varies; often $10K–$100K |
| Retirement Plan Startup | New 401(k) or SIMPLE IRA | Up to $5,000/year × 3 years |
| Disabled Access | Accessibility renovations | Up to $5,000 |
| Small Employer Health | SHOP-purchased group coverage | Up to 50% of premiums |
Coordinating Credits with Deductions: A Practical Example
A Utah staffing agency hires five veterans in 2024, paying each $42,000 in wages.
Without credit planning:
- Wages deducted: $210,000
- Tax savings at 24% federal + 4.65% Utah: $60,165
With WOTC:
- WOTC credit (five hires × 40% × $6,000 cap): $12,000
- Wage deduction reduced by $12,000: $198,000
- Deduction tax savings: $56,727
- Plus credit: $12,000
- Total tax benefit: $68,727
Net improvement from claiming credit: $8,562
How to Claim Business Tax Credits
Most business credits are claimed on IRS Form 3800 (General Business Credit), which aggregates all component credits from their individual forms (Form 8850 for WOTC, Form 6765 for R&D, Form 8826 for Disabled Access, etc.). The total flows to the income tax return.
Utah credits are claimed on Schedule C of the Utah TC-20, TC-20S, or TC-65 — depending on entity type.
Start the Conversation Before Year-End
Tax credits have deadlines embedded throughout the year — the WOTC form is due 28 days after hire, retirement plan documents may need to be signed by December 31, and some credits require pre-certification. Waiting until tax filing season means many credit opportunities have already expired.
Call (801) 927-1337 or visit cpaone.net/tax-planning to schedule a credit review for your business. You can also email us at admin@cpaone.net.
Author Bio | Missy Dennis, CPA | Partner | FJ & Associates, PLLC | Kaysville, Utah | Missy holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant. She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence. With more than twenty years of public accounting experience, Missy Dennis specializes in: Tax preparation and tax advisory; Bookkeeping strategy alignment; Estate and trust taxation; Audit and consulting services; Low-income housing tax credits; Non-profit accounting; Small- and mid-sized business advisory.
