The problem? Many business owners miss out on these savings and end up paying more than they need to. The good news is, if you know what to look for—and how to claim it—you could lower your tax bill and start the new year in a stronger financial spot.
Fuel tax credits for professionals in manufacturing (and certain other industries) were originally set to expire after the 2021 tax year. However, what many don’t realize is that these credits were extended through at least 2024. That means eligible businesses can still take advantage of them when filing taxes by April 2025.
In general, businesses in industries like manufacturing, construction, and farming may be eligible for fuel tax credits—provided the fuel is used in off-highway vehicles or equipment. These credits typically range from 50 cents to $1 per gallon, including for alternative fuel sources, and can help reduce overall operating costs. Eligible alternative fuel types include propane, biodiesel, and liquefied hydrogen.
Contractors and manufacturers should also take a close look at the tax credits and incentives available in the states where they operate. Many states offer industry-specific deductions and credits that can significantly reduce your tax bill—but these are often missed by business owners.
To find out what your business might qualify for, it’s a good idea to check with your state’s department of revenue. Common state-level incentives include credits for research and innovation, purchasing personal protective equipment (PPE), or even hiring new employees within the state.
Speaking of research and development, this is another area that is commonly overlooked when it comes to business taxes. Specifically, the IRS offers a Credit for Increasing Research Activities for contractors and manufacturers that develop, design or improve upon existing products/services.
There are several ways a business can qualify for the R&D credit, but the key requirements are consistent. The research must have a clear permitted purpose, be based on principles of science or engineering, and follow a structured process of experimentation. If your business meets these criteria, the credit can be applied to your income tax liability—or carried forward to reduce taxes in a future year.
In addition to research and development tax incentives, contractors and manufacturers may also be able to claim special employment tax breaks as a means of minimizing their tax burdens. The Work Opportunity Tax Credit, for example, allows businesses to claim a credit for hiring employees who typically face barriers to employment, such as ex-felons and military veterans. Meanwhile, the Empowerment Zone Employment credit is offered to businesses that pay wages to employees living in designated empowerment zones (up to 20% of the first $15,000 of wages).
From fuel tax credits to state-specific incentives, there’s a lot to consider when preparing your taxes this spring—especially for contractors and manufacturers. Before you file, take time to review the eligibility requirements for these tax breaks and identify which ones apply to your business. Doing so can help ensure you’re not leaving valuable savings on the table.
Need help navigating the process? Working with a qualified tax advisor can take the pressure off and help you make the most of every available credit and deduction.