6 Tools Every Small Business Owner Needs to Succeed in 2017
The dawn of 2017 likely brings with it new optimism — not just in your personal life, but for your business as well. But are you ready to take on this new year wisely?
Before you start making sweeping changes in your small business, take a look at these six tools which can help you along the way. They’ll inform your business decisions (and maybe some personal ones, too.)
1. An accounting system
No matter how good your accountant is, s/he can’t read minds. Whether you prefer desktop or cloud-based models, make sure you have an accounting system on your side in 2017.
Keeping a record of your financial choices as you move through the year will make it easier to control your expenses and prepare for your next round of tax payments. And if your business ever gets audited, you’ll be so glad to have your accounting system to refer.
Not sure where to start? Try Intuit QuickBooks, Xero, Zoho, or Freshbooks.
2. A calendar
Who doesn’t love opening a new calendar or planner as the new year arrives? Choose a calendar that works for your lifestyle to better manage your time. A paper planner can help you stay organized by requiring you to pen in each detail, while a digital version can keep your schedule up-to-date at your fingertips.
Don’t forget to schedule important recurring dates like tax payments, employee pay periods and anticipated supply ordering dates.
3. Design tools
You don’t need to be an artist or a Photoshop wizard to create compelling graphics for your business. For everything from flyers to banners to social media posts, find the online tool that works for your business needs. Check out Canva, Pixlr, or GIMP.
You can’t deny it forever: When you’re tired and worn-out, your business just doesn’t run as well. Commit to getting more sleep in 2017, even if it’s just an extra half-hour each night.
Have a hard time breaking away from business matters right before bedtime? Keep your phone in the next room, and instead, rely on an old-fashioned alarm clock to wake you up each morning. Turning your bedroom into a no-phone zone might be just the thing you need!
5. An updated business plan
Last month, I noted that the end of the year is the perfect time to review your business plan and make updates as needed to benefit your company’s growth.
Now, it’s time to put that change into action. Remember that small changes can be as effective as large ones.
6. A mentor
Don’t dive into this year’s business goals without a mentor! Attend a SCORE workshop near you or online, and sign up to meet with a mentor. No matter where you are in your small business journey, a mentor can help keep you on the right track toward success.
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Using Technology to Work Smarter (Not Harder) Twitter Chat | #SBAchat
Please join us for a Twitter chat on “Using Technology to Work Smarter, Not Harder” hosted by @SBAgov. We’ll be sharing tips and resources to help small business owners start, grow and succeed. Follow along with the hashtag #SBAchat.
Thursday, January 12, 2017
3pm ET | Noon PT
Confirmed participating organizations inlcude:
@cindy_bates of @Microsoft
@Rieva of @SmBizDaily
@BarbaraWeltman of Big Ideas for Small Business
@PAMcHugh of @LockheedMartin
@JoshLinkner with @ChaseforBiz
@MastercardNews and @MastercardBiz
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Why Traditional Advertising Still Matters
Online, mobile and other forms of digital advertising are top-of-mind for most marketers these days. But in the rush to digital, are you forgetting a vital part of marketing? Two recent studies reveal recent that traditional advertising—including print, TV and radio—still has an important role to play in attracting customers. In fact, it may be more important than digital advertising in some cases.
That’s because consumers like and trust traditional advertising much more than digital advertising. For example, eight in 10 consumers in a MarketingSherpa study say they usually trust print advertising (82 percent) and television advertising (80 percent) when making a purchasing decision. Direct mail advertising (76 percent), radio advertising (71 percent) and out-of-home advertising (69 percent) followed close behind in terms of trustworthiness. In fact, the top five most trusted ad formats are all traditional media.
In contrast, online pop-up ads are the most hated and least trusted kind of advertising. Just one-fourth of respondents in the MarketingSherpa study trust pop-ups, and 73 percent of consumers in a separate HubSpot survey dislike them.
Meanwhile, MarketingSherpa found, consumers engage with traditional ads to a surprising degree. For instance, more than 50 percent say they “often” or “always” watch television ads from companies they’re satisfied with. Half also read print ads they get in the mail, and 48 percent read print ads picked up in-store. Email is the only digital format with similar engagement levels: Half of survey respondents say they “often” or “always” subscribe to emails from companies they like.
What kinds of ads don’t customers engage with? HubSpot’s survey shows 57 percent of those surveyed dislike online pre-roll ads (ads that play before a video), and 43 percent don’t watch them. In addition, many consumers block online ads altogether. Common complaints about online ads: they’re intrusive, they make websites load more slowly or they cover the entire website.
Pop-up ads or ads that require customers to click in order to close them are especially annoying. Some 90 percent of consumers in the HubSpot survey say they dislike such ads. Mobile phone ads earn disdain as well—seven in 10 HubSpot respondents hate them.
Essentially, consumers dislike online ads that keep them from accomplishing what they’re trying to do—read an article, browse a website or watch a video. Perhaps traditional ads seem more appealing because they’re also more controllable. Consumers can choose to look at your print ad, flyer or direct mail piece at a time and place convenient for them.
Of course, digital advertising should be part of your marketing plan—it’s essential these days (not to mention affordable). But how can you take advantage of traditional advertising’s power, too?
- Integrate your online presence into your traditional advertising. Say your website URL multiple times in your radio ad, show it at the bottom or your cable TV ad or print ad, and include it in direct mail pieces.
- Create different landing pages for different ad campaigns. This enables you to craft a more effective call to action. If you just send a visitor to your home page, he or she may get lost along the way to making a purchase.
- Track the results of your advertising. Use codes in print ads and custom URLs in digital ads to see which campaigns get the best results. That way, you can focus more of your budget on the formats that are most effective for you.
- Be sure your branding is consistent. Whatever the format—online or offline—your advertising should convey a consistent brand message, using the same colors, fonts, style and taglines throughout.
By advertising both online and offline with an integrated approach, you get the best of both worlds. You can boost trust in your business, get customers to spend more time with your ads, and improve customer acquisition and sales.
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The Right Way to Think About Credit Lines for Business
Access to cash via a line of credit is an important safety net for a small business. Although there are various types of credit lines available, it is the flexibility it provides that makes it so popular among small business owners.
A line of credit is more like cash on demand for a set amount. You can draw funds up to the credit limit set when your company needs it, and you only pay interest on the funds you withdraw. Best of all, every dollar of principle you pay back becomes available for the company to use again.
The important thing to remember is credit lines for businesses have received an overhaul in the past several years. No longer is a credit line being issued just by banks down the road. Today, there are completely different lines of credit issued to businesses from alternative lenders rather than by banks alone. In addition, small business owners can also get credit lines secured by specific types of collateral such as equipment and accounts receivables.
Here’s how I’ve learned to think about credit lines for business by following three simple rules.
Rule 1: Diversify your access to credit lines
When you rely on one bank or one type of credit line as the sole source of funding it may put your company at risk. When there is no backup plan if the company loses access to credit it can devastate a small operation. “A few years ago, losing a line of credit was a crisis - today, it's the new normal,” says Marilyn Landis, a board member of the National Small Business Association in Washington, D.C.
Ask yourself right now what you’ll do if your existing line of credit gets shut down or drastically reduced tomorrow. To combat this, you need to diversify your access to credit lines through banks and alternative lenders. Remember, the credit lines your company has access to will be there when you need it, and you don’t have to use it or pay for it if you don’t. The National Federation of Independent Businesses says, “Think of it as an insurance policy that never needs to be paid until you need it.”
Rule 2: Use your credit line for what it’s good for
Recognize that credit lines provide an advantage over regular business loans. You only pay interest and fees on the portion of funds you use. If your credit line is for $20k and you don’t withdraw any funds, you won’t have any interest to pay. The entire $20k is available for the business to use but you only make payments on the money you’ve actually used.
The fact is a credit line for a business is a much more affordable option to fund short-term finance needs, like buying inventory, paying business expenses, or purchasing new equipment compared to applying for a business loan.
Rule 3: Practice Self-Discipline
Stay on top of your payments when it comes to paying back the funds you used on your credit lines. The use of credit lines in the company’s name provides the business an opportunity to establish a business credit rating – which can be very valuable for future financing. Although credit lines provide many benefits, their downside is accumulating debt which can lead to costly interest in the long term. While debt can definitely be a useful tool for certain aspects of a business, business owners need to make sure their debt is working for them and not against them.
On a final note, it’s essential to understand that credit lines for businesses are constantly evolving and changing. Sometimes unexpectedly. That doesn’t mean you need to go along with every funding option. Do your research and outweigh the pros and cons of each credit line product. Develop a diversity of access to credit lines for your business, and leave the anxiety and fear behind.
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Your Company’s Charitable Giving
“Giving is its own reward” said social activist Dorothy Day, but the tax law also provides some benefit to those who give. At this time of the year, attention to charitable giving is more important than ever because there are so many individuals who have suffered from disasters this year; others continue to face economic challenges and still others just need a helping hand during the holiday season. Here’s how your business can help those in need, and what you can gain tax wise.
Cash donations, which includes donations by check, credit cards, and electronic transfers, is the most common type of donations. You can deduct the amount given to IRS-recognized charities. Use the IRS’s Search for Charities to make sure the organization you’re donating to is tax-exempt. You cannot deduct gifts directly to an individual, no matter how needy the person may be.
Owners of pass-through entities report their share of the company’s donations on their individual returns. Cash donations are deductible by those who itemize up to 50% of adjusted gross income. Donations by C corporations are limited to 10% of taxable income.
Giving inventory may benefit the charity as well as your business. You can, for example, dispose of excess or obsolete inventory (that still has value), which is still very useful to a charity. Tax-wise, your donation is limited to your tax basis (typically your cost) if the fair market value of the property is greater.
C corporations. Donations of inventory items to a charity that cares for the ill, the needy, or infants receives an enhanced donation. This is your basis (cost), plus one half of the profit that would have been recognized if you’d sold the inventory at its fair market value. The deduction, however, cannot exceed two times your basis.
Food inventory. For all types of entities there’s also a similar enhanced deduction for donations of apparently wholesome food. Again, the donation must be made to an organization that uses it for the care of the ill, the needy, or infants.
If this is a slow time of the year for your business, consider giving employees time off. While you can’t require them to use the time for charitable purposes, you can encourage them to do so. For employment tax purposes, this paid time off is treated as any other compensation.
You cannot deduct the value of your time. So, for example, if you have an electrical business and do wiring for a local charity, you cannot deduct what you would have charged for labor. However, any materials you use for this activity is deductible as an unreimbursed out-of-pocket expense.
The actions you and your staff can take to benefit charities are endless. Here are some ideas:
- Participate in local charitable activities, such as being a drop-off point for Toys for Tots.
- Hold a blood drive. During the holiday season, local blood banks routinely find themselves short of blood and can use the donations.
- Attend fundraisers. Your donation is limited to the amount that exceeds the benefit you receive.
- Leave-based donations. Set up an in-house fund to which employees can donate their unused vacation, sick, and personal days. These unused days can then be used by an employee in need. Generally, the donated leave time is still taxable compensation to employees, and subject to employment taxes. However, from time to time the IRS let’s employers donate the unused leave time to charities benefiting victims from specific disasters, such as the Louisiana floods and Hurricane Matthew this year. If so, employees aren’t taxed on their donated leave time and the company gets a charitable contribution deduction.
If you give any money or property, be sure to properly substantiate the donation if you want to claim a write off. You must receive a written acknowledgment for a donation of $250 or more and retain checks or other proof for a smaller donation. For more information, see IRS Publications 526, Charitable Contributions.
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Why December is a Great Time to Review Your Business Plan
While December is a busy time for small businesses trying to end the year on a high note, it should also be a time for introspection and review. After all, December is National Write a Business Plan Month!
You might think this occasion is reserved for new, aspiring business owners. But a business plan is so crucial for success that it’s also a good idea to take time to review your plan on a regular basis. This month is a great time for that.
Here’s how to review your business plan to prepare for success in the coming year.
1. Set aside one hour to review your business plan
Yes, you can make progress in just one hour! Set aside quiet time to read through your business plan — no matter how old it is — cover to cover.
Don’t be hard on yourself if your current business reality isn’t the same as your plan projected. Celebrate your successes, of course! But your real task here is to read and contemplate your plan. Pay attention to how you feel as you do this, and jot down any ideas or thoughts that come to mind.
2. Step away from your plan for a short time
Don’t rush to any conclusions or judgments when you finish reading your plan. Set aside the document. Take a walk. Get back to work for a few hours.
See what thoughts bubble up about your plan. Do any ideas spring to mind to improve your business plan?
If you find yourself feeling frustrated during this step, remember that your business plan is a living document that can be changed at any time. No plan is set in stone unless you want it to be.
3. Set goals for 2017
It’s time to set goals for 2017. What do you hope to accomplish? Do those goals fall in line with your original business plan, or is it time to draft a new version?
One of the best ways your business plan can guide you in setting new goals is by reviewing your weaknesses.
Your business plan includes a SWOT analysis, evaluating the strengths, weaknesses, opportunities and threats for your own business compared to your competition. Go back to the “weaknesses” portion of that report. Do you still agree with what you listed for your business? Are those weaknesses still true for your business, yourself as the boss, or both? Whether you’ve added skills and strengths to your business endeavor or you’re still struggling, think about how you can grow — or ask for more help — in 2017.
When you’re finished, you’ll probably have a lot of ideas for your business for 2017 and years to come. The beginning of the year is a great time to set up a meeting with a SCORE mentor to talk about how to help your business grow. Anxious to get started right away? Don’t wait! Volunteer mentors work all year round — including around the holidays — to support small business.
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10 Reasons All Business Owners Should Plan
Whether you're just starting out, growing your business or seeking outside help, good business planning will help you achieve that goal. And take note: this means you, business owners. The startups know why they need a plan, but we business owners often think planning is just for startups. That’s not the case.
Also, to be clear, I’m writing about planning, not just a plan. That’s an important distinction. It’s almost 2017. Planning means planning process, a lean business plan with monthly reviews and revisions to guide management. Planning is not a document that you use once and throw away. It’s an ongoing management process.
Furthermore, I’m not talking about a big formal business plan. I’m talking about lean business planning, with a simple plan that is just big enough to manage the business.
- Manage cash flow. Profits are accounting creativity, while cash flow is your bank balance. You can’t spend profits. Plan cash flow with linked projections of sales, spending, and cash. It’s the number one essential of business planning.
- Set strategy. Strategy is focus on specific differentiation points, target market, and business offerings. Most business owners want to do everything for everybody; but success requires focusing on doing the right things for the right market segments. So we write down the key points. Then we refer back to them, regularly, as reminders.
- Match tactics to strategy. Tactics are decisions you make on product or service, marketing, pricing, promotion, financing, and so forth. Too often we forget the strategy while executing tactics. Does pricing match differentiation and target marketing? Does promotion?
- Set specific milestones, metrics, tasks, responsibilities, dates, and deadlines. Management is about setting expectations, tracking results, and comparing the two. So expectations need to be specific, trackable, written down, and communicated. So do results. Accountability requires specific metrics and task responsibilities. All of this happens with planning. Use planning to get everybody in your team on the same page. Communicate expectations and results as part of the planning process.
- Deal with displacement. You can’t do everything. You have your strategic focus laid out, so then you decide what you can and can’t do, realistically, in the context of strategy. The principle of displacement says that everything you do rules out something else that you can’t do because you are doing that first thing.
- Manage fixed costs, locations, and spending. Use your planning process to put numbers on key concepts to guide decisions about new locations, upgrades of equipment, and so on.
- Know when and why to hire new people. Use your planning process to pinpoint needs for new hires, functions required, and related expenses.
- Manage a team. People work better when they know their specific metrics, tasks, and expectations. Use the planning process to keep those clear and share with the team. Accountability is a lot easier when you have numbers and tracked results. Your review process gets a boost when it links to the plan vs. actual numbers in your planning.
- Plan and execute financial needs. Know ahead of time before you need a loan or seeking investors. Understand the relationship between growth and working capital. Fill financial needs before your back is against the wall.
- Grow your business. Your planning gives you a forum to review strategy and results, review tactics, and develop plans for growth into new markets or into new business offerings.
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22 Holiday Marketing Ideas for Local Businesses
Small Business Saturday is over, but it’s not the only opportunity for local small businesses to capture customers’ dollars this holiday season. Whether you’re a retailer, restaurateur or own a service business such as a hair salon, there are plenty of opportunities to market your biz for holidays. Here are 22 ideas to get you started.
- Check in with last year’s customers. Who bought from your business during the 2015 holiday shopping season? Reach out to them with email marketing messages, special offers or direct mail pieces. This is a great tactic for service businesses who sell services needed annually, such as carpet cleaning or HVAC servicing.
- Partner with other businesses near you to host a holiday shopping event, such as a sidewalk sale. Restaurants can sell small portions of their menu items to attract even more traffic.
- Hold a contest or raffle. This is a great way to get customers involved with your business and increase foot traffic.
- Team up with another local business and offer discounts for people who have a receipt from your partner store (and vice versa). You can make it a complementary business (such as a toy store and a children's clothing boutique) or just base the partnership on proximity (such as a restaurant next to a movie theater).
- Add entertainment to your store. Take it one step beyond holiday decor and music by actually hosting musicians, storytellers, face painters or magicians—whatever makes sense for your business. Promote the performance online and with outside signage to attract passersby.
- Display art from local artists on your walls (and let customers buy it). You can change the offerings every few weeks to keep it fresh. Have an art opening with invitations and refreshments whenever you add a new artist.
- Create a photo op. Get creative with holiday photos with Santa. They’re not just for kids: Set up a time for pets to have their photos taken too. Don’t have room for Santa photos in your location? Team up with other local businesses and your Chamber of Commerce and find a space nearby that can host Santa (and drive traffic to your businesses in the process). For example, on one retail shopping street near me, Santa greets children in front of a local bank every year.
- Teach your customers how to do something holiday-related. Holiday crafts, a gift wrap clinic, or lessons in cooking a special holiday dish are all ideas for holiday how-tos.
- Hold special holiday hours. Your customers have busy lives, and you're competing with e-commerce businesses that are open 24/7. Expand your hours if possible to accommodate as many customers as you can. Be sure to promote the extended holiday hours on your website.
- Get social. In addition to promoting all your sales and events on social media, you can also share useful tips related to your business. For example, a retailer could share various gift guides (such as gifts for teachers, grandparents, boyfriends). A catering company could share ideas for party planning and decor. A carpet cleaning business could suggest ways for making a house guest-ready (including, of course, cleaning the carpets).
- Hold VIP events for your best customers. Tap into your customer data to determine which customers are your big spenders. Then hold events just for them, such as an after-hours sale where your store is open only for VIPs or a holiday open house.
- Develop special holiday-themed offers. For instance, an auto service station could offer a “Going to Grandma's House” tune-up to get the car in shape before a long trip. A hair salon can promote a “New Year’s Party Package” to do people’s makeup and hair on New Year’s Eve day.
- Use socially responsible marketing. Choose a local charitable organization to help for the holiday season. You can donate a percentage of sales from one day, or all proceeds from one specific product purchase, to that charity.
- Think of the children. Your neighborhood undoubtedly has at least one charity organization that provides holiday gifts to underprivileged children. Get your customers to participate by making donations or donating gifts they buy at your store.
- Get customers to gift themselves. Most people end up buying at least a few presents for themselves while they’re doing their holiday shopping. Capitalize on this tendency by offering specials to encourage it, such as “buy one, get one free” or “buy one, get one for a friend.”
- Give away free gifts with purchases over certain amounts. This is a great way to encourage customers to spend a little bit more than they otherwise would. You can even offer different gifts at different spending levels, such as a small gift for a purchase of $50 and a larger gift for purchases over $100.
- Sell gift certificates or gift cards. Gift cards are perennially one of the most popular gift ideas for holiday shoppers. If your store isn’t already offering them, you’re missing out on a huge potential source of income. Put gift cards close to the checkout register and promote them with signage throughout your store.
- Sponsor or participate in holiday-related events in the community, such as a Christmas parade or New Year's Day fun run. You can donate money, product, or have a presence at the event, such as a restaurant selling refreshments at a parade.
- Do a “12 Days of Christmas” or “Countdown to Christmas” promotion with something different every day. For example, you can offer 50 percent off a different popular product or menu item each day, a different gift with purchase each day or a different percentage off the total purchase each day.
- Use direct mail. Most people are swamped with promotional emails at the holidays. Stand out from the pack by using direct mail. Keep costs down by mailing postcards. You can even send out gift cards, such as a card good for $15 off a $75 purchase—these often motivate customers more than percentage off coupons do.
- Distribute door hangers to targeted households in local neighborhoods. If your business is very neighborhood-oriented, such as a restaurant that delivers, door hangers can create awareness among your target customers.
- Use time-sensitive offers. During the holidays, everyone is shopping on a deadline—whether that's Christmas, Hanukkah or just the day of a holiday party they’re planning to attend. That makes time-sensitive offers especially effective.
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Obama Administration Marks Five Years of the Veterans Opportunity to Work to Hire Heroes Act
Five years ago today, President Obama signed into law the Veterans Opportunity to Work (VOW) to Hire Heroes Act of 2011, which brought about major changes to help transitioning Service members and veterans.
On the fifth anniversary of the signing of the law, we pause to reflect on the progress the Administration has made to promote the economic opportunity of our service members and veterans.
In 2011, faced with veteran unemployment rates that remained high following the Great Recession and a national need for more entrepreneurs and skilled workers, the President signed the VOW Act, which mandated that the Department of Labor (DOL) study the skills that service members learn in the military and improve the translation of those skills into civilian-sector certifications. The Act also authorized the Department of Veterans Affairs (VA) to provide eligible veterans with up to one year of additional Montgomery GI Bill benefits, to extend vocational rehabilitation and employment benefits for 12 months for eligible veterans, and to expand the Special Incentive Program to employers who hire and provide on-the-job training for eligible Veterans.
At the same time, the Administration brought together a diverse group of government partners charged with redesigning the decades old Transition Assistance Program (TAP) to ensure separating service members are prepared for educational advancement and meaningful career opportunities after transitioning into civilian life.
Together, the Departments of Defense (DoD), Education, DOL, and VA, as well as the Office of Personnel Management (OPM) and the Small Business Administration (SBA), and others, oversaw the creation and implementation of a framework to instruct, gauge, and enhance service member career readiness through the redesigned TAP.
I believe that thanks to VOW Act, the Administration’s leadership, and all of SBA’s valued partners, Transitioning Service members and military spouses pursuing small business ownership have more resources than ever before. Veterans make great entrepreneurs and America’s 2.5 million veteran owned small businesses are vital contributors to our economy. SBA is proud to empower the next generation of veteran entrepreneurs through TAP and our Boots to Business program.
The interagency collaboration improved communication on the topic; better leveraged federal tools, processes, and limited resources; and resulted in several enhancements to the transition process, including the following:
- A redesigned curriculum that is mandatory for all separating service members and available to all military spouses
- Additional “career tracks” for those wanting to start a business, seeking job-ready skills, and those pursuing higher education
- Smaller class sizes to provide individual attention
- Individual transition plans that are customized to each Service member’s personal goals
- Completion based on achieving "Career Readiness Standards,” not simply attendance
The program concludes with a capstone event, verifying that each service member has met Career Readiness Standards and has an actionable individual transition plan.
The enhanced TAP also equips service members with skills and resources to cope with the stress of separating from the military; how to identify and promote translatable employment skills, training and pre-transition activities to help them obtain meaningful civilian employment; and information on how to capitalize on all the VA benefits earned through their military service. An additional congressional authority called SkillBridge complements TAP by allowing eligible service members to obtain civilian job skills training from employers beginning up to six months prior to separating from the military.
Watch service members discuss their experience going through the program.
To further improve transition, an online curriculum was made available to service members, veterans, and their families. Participants can access the courses and review the training at their preferred pace. Veterans who transitioned before the enactment of the redesigned TAP can also take advantage of this online curriculum at any time. This curriculum is available here.
Since the implementation of the VOW Act:
- More than 1 million service members have transitioned into civilian life
- The unemployment rate for veterans has been reduced by more than half, falling from a high of 9.9 percent in 2011 to 4.3 percent today. In addition, the Post-9/11 veterans unemployment rate is 4.7 percent today, down from a high of 15.2 percent in 2011
- VA has deployed more than 300 Benefit Advisors worldwide to provide information on the benefits and services VA provides
Every year, roughly 200,000 service members separate, retire, or are released from active duty, and we are excited about the progress that has been made in preparing them for success. Moving forward, agencies will continue to work to ensure service members, veterans, and their family members are provided the opportunity to fulfill the American dream.
- To learn more about DoD’s curriculum and transition resources, visit: https://www.dodtap.mil/
- To learn more about VA support under TAP, visit: http://www.benefits.va.gov/tap/
- To learn more about DOL’s employment resources for veterans and more than 2,400 local American Job Centers across the country offering in-person assistance, visit: http://veterans.gov/
- To learn more about OPM’s resources supporting the employment of veterans in the federal government, visit Feds Hire Vets: https://www.fedshirevets.gov/
To learn more about the Federal Government's Council on Veterans Employment efforts to assist veterans, transitioning service members, and their families with federal careers, visit Feds Hire Vets, the federal government's one-stop resource for federal employment information at: www.fedshirevets.gov.
Ayotunde Babajide is Senior Policy Advisor for the National Economic Council and the Office of Science and Technology Policy.
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Tax Credit for Hiring Veterans
Many employers have come to learn that veterans make excellent employees. They usually are easily trainable and possess desirable characteristics, such as honesty, loyalty, and responsibility. If these attributes were not enough to induce employers to hire veterans, the tax law offers even more. The tax law encourages employers to hire certain targeted groups of workers by offering a tax credit tied to the wages of these new employees, and certain veterans are treated as a targeted group. Here are the special rules to know when hiring so that you may take credit where credit is due.
Which veterans qualify?
As a small business owner, you qualify for the work opportunity tax credit (WOTC) if you hire a veteran who falls into any of the following categories:
- Having a service-related disability
- Unemployed for a specified period
- Receiving SNAP (food stamp) benefits
However, even if a veteran does not fall within any of these categories, he or she may still be a member of another targeted group. This would still allow you to take a tax credit. For example, a veteran who has been a member of a family that received TANF payments for at least 18 consecutive months is treated as a member of a targeted group for long-term family assistance recipients.
What is the tax credit amount?
The tax credit reduces your tax bill dollar-for-dollar, so each $1 of WOTC saves you $1 in taxes. The credit is based on the amount of wages paid to an eligible veteran in the first year of employment. The maximum tax credit is based on a set percentage of maximum first-year wages, which is fixed by law, and the number of hours worked. For example, for veterans, the basic percentage of first-year wages is 25% for those who worked at least 120 hours but fewer than 400 hours; it is 40% for those who worked at least 400 hours.
The maximum credit for a veteran working at least 400 hours is:
- Service-related disability and unemployed at least 6 months in the year ending in the hiring year: $9,600 ($24,000 in wages x 40%).
- Service-related disability and hired within 1 year of discharge or release from active duty: $4,800 ($12,000 in wages x 40%)
- Unemployed at least 6 months: $5,600 ($14,000 in wages x 40%)
- Unemployed at least 4 weeks: $2,400 ($6,000 in wages x 40%)
- Receiving SNAP benefits: $2,400 ($6,000 in wages x 40%)
There is no limit on the number of eligible employees you can hire for the credit. For example, if you hire 3 veterans with service-related disabilities who are unemployed at least 6 months, your credit is $28,800 ($9,600 x 3).
The WOTC is set to run through 2019, and you can take the credit year after year as you expand the size of your staff. Thus, even if you take a tax credit for hiring a veteran in 2016, you can do so again next year.
Being eligible for the credit isn’t enough to claim it on your return. To take the tax credit, you must submit IRS Form 8850 to your state workforce agency within 28 days of the first day of employment. Also submit ETA Form 9061, or ETA Form 9062 if the employee has already been conditionally certified as belonging to a targeted group at the same time. The purpose of these submissions is to confirm that your new employee is indeed a member of a targeted group.
The credit is claimed on IRS Form 5884, which is attached to the employer’s income tax return.
When hiring, keep the WOTC in the back of your mind. While it may not be a primary factor in making a hiring decision, it may just be the tipping point in favor of one applicant over another.
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