Launching a new company has the potential to be highly successful, exciting, and entertaining. Of course, it is also pricey. Running out of money or being unable to secure additional funding is frequently cited as the leading cause of startup failure in the US.
However, capital investments and personal savings aren’t the only ways to get the money your startup needs to stay alive and grow. Smart founders know where to find tax credits and incentives to help cut costs and encourage new ideas.
The problem is that some of these tax credits and incentives can be nearly impossible to find. Our goal is to help make things easier, so we have put together some of the more popular tax credits and incentives your Maryland startup can use.
Is There a Credit for Starting a Business?
While Maryland entrepreneurship might sound like a dream come true, getting started for many is a nightmare. One of the biggest obstacles and reasons startups fail is the need for proper funding. Luckily, several federal and state tax credits can help your new business cut down on costs.
Work Opportunity Tax Credit
From now until at least 2025, companies and other small businesses that hire people from certain groups can get a work opportunity tax credit of up to $9,600 per employee. No limit exists on the number of employees a business can claim, but they must be from a specific group. Eligible employees include prior felons, SNAP and SSI recipients, military veterans, long-term unemployed, people who have been referred from vocational rehab, and more.
The credit can go to all those employees, but it’s only good for the income and social security taxes your startup owes. Put another way, the work opportunity credit can only give you back the amount of money you paid in income and social security taxes.
Retirement Plan Startup Tax Credit
Startups can also help their employees by providing a good retirement plan. Qualifying businesses may receive up to $5,000 a year for up to three years when they set up a retirement plan for everyone on their team.
Any Maryland startup that employs 100 people or less, at least one of whom must be a non-highly compensated employee, is qualified for this credit. Lastly, none of the workers you are claiming credit from your company may have gotten a different kind of retirement plan.
Research and Development Federal Tax Credit
The research and development credit is the biggest tax break startups can get. You can only get the R&D tax credit if your startup has been making money for less than five years and less than $5 million a year while still not being profitable. Costs that can be claimed for the R&D tax credit include activities linked to science, trying new things or improving old products, processes, or services, and learning by doing. While this is a federal tax credit, Maryland also offers a state tax credit.
What is the Small Business Credit in Maryland?
Small companies that offer paid sick and safe leave to their staff are eligible for the Small Business Relief Tax Credit. Maryland businesses can claim a refundable tax credit for each employee who earns paid sick and safe leave, up to $500 per employee or $7,000 per small business.
For a small business to be eligible for the tax credit, it must have 14 or fewer employees whose main place of work is in Maryland and follow the Maryland Healthy Working Families Act by giving its employees paid sick and safe leave. People who work in Maryland are entitled to an hour of paid sick and safe leave for every thirty hours they put in. This leave is paid at the same rate as the person’s regular hourly pay. Wages paid by the small business to qualified employees must be equal to or less than 250% of the federal poverty level for a one-person family per year.
What is the Maryland Innovation Tax Credit?
The Maryland Innovation Investment Tax Credit helps Maryland’s tech industries grow by offering rewards for investing in young businesses. The goal is to boost the number of companies in Maryland creating new technologies, the total amount of money invested in current and new tech areas, and the number of individual investors who are actively investing in Maryland tech companies.
IITC gives an income tax credit up to 33% of eligible investments to a Qualified Maryland Technology Company, and a maximum of $250,000 in tax credits. If the QMTC is in Allegany, Dorchester, Garrett, or Somerset County, the tax credit is equal to 50% of any eligible investment in a QMTC, up to a maximum of $500,000.
What is the One Maryland Economic Development Tax Credit?
You can get credits for specific project fees to open, move, or expand a business in a Tier I Maryland county. At least $500,000 must be spent on qualified project costs to get the credit for project costs. To be eligible for the maximum credit of $5,000,000, at least 50 newly hired qualified employees must work at the new or expanded facility for at least one year. If that number is less than 50, at least 25 employees must work at the new or expanded facility for at least one year, and if that number is less than 25 employees, the maximum credit is $1,000,000.
What is Advantage Maryland?
Advantage Maryland, also known as the Maryland Economic Development Assistance Authority and Fund, is a broad and flexible program that helps economic development projects by giving funds, loans, and investments. It can be used to build infrastructure, redevelop brownfields, create arts and entertainment areas, run daycares, manage revolving loan funds, and make local strategic plans. The projects must be in Priority Funding Areas and in industries that are qualified for funding. Awards are given out based on competition.
Advantage Maryland helps the business community and local governments by providing five different financing options. These include direct assistance to local jurisdictions, strategic economic development opportunities, regional or local revolving loan funds, local economic development opportunities, and special purpose funds.
Final Thoughts
Of course, these are only some of the tax credits and incentives that your Maryland startup can get. Maryland makes it easier to get money to support innovation, hire more people, update industrial equipment, make roads and bridges better, and more. If your new business is looking for financial assistance, Maryland offers a way for your business to get it.
