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5 Tax Benefits for Veteran-Owned Small Businesses
Explore essential tax benefits for veteran-owned businesses, from hiring credits to property tax exemptions, that can significantly boost your savings.
Table of Contents
Veterans who own small businesses can save thousands of dollars annually by leveraging tax benefits. Here's a quick overview of the top 5 tax advantages available to you:
Work Opportunity Tax Credit (WOTC): Meet federal hiring criteria by getting up to $9,600 per eligible veteran hire, no cap on the number of hires.
Property Tax Exemptions for Disabled Veterans: Reduce or eliminate property taxes based on your VA disability rating. Savings vary by state.
State Tax Programs for Veterans: Access state-specific benefits like hiring credits, license fee waivers, and procurement preferences.
Tax Filing Benefits: Use free resources like MilTax or IRS Free File and avoid taxes on non-taxable VA benefits like disability compensation.
SBA Tax Relief Programs: Leverage deductions, waived fees, and federal contracting opportunities tailored for veteran-owned businesses.
Why These Benefits Matter
Veterans often face challenges like limited access to capital. These tax programs free up funds for hiring, expansion, and operations. Start by registering your business with the VA and consulting your local tax office to claim these benefits.
Take action today to maximize your savings and reinvest in your business growth.
Understanding the Work Opportunity Tax Credit
1. Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit (WOTC) is a federal tax incentive designed to ease employers' tax responsibilities while encouraging the hiring of veterans and other individuals from groups that have historically faced challenges in finding employment, including veterans [2].
"The Work Opportunity Tax Credit provides a major benefit to both employers and job seekers. A well-run Work Opportunity Tax Credit program can provide companies a return on their investment for hiring well-qualified candidates. This return on investment allows them to reinvest in their business and gives them the ability to expand their workforce even further, which benefits both the company and potential candidates. In my opinion, the Work Opportunity Tax Credit program really is a win-win." - Trey Watford, Lead Software Engineer, Synergi Partners [5]
This program is available through December 31, 2025, giving businesses plenty of time to take advantage of its benefits [2]. One standout feature is that there’s no cap on the number of eligible veterans you can hire, meaning there’s no limit to the total credits you can claim [4].
Before diving in, make sure your hiring practices align with WOTC eligibility requirements.
Who Qualifies for WOTC
To claim this tax credit, you’ll need to hire veterans who meet specific qualifications. A qualified veteran typically falls into one of these categories [2][7]:
Veterans receiving government assistance: Those who are part of a family receiving Supplemental Nutrition Assistance Program (SNAP) benefits for at least three months during the 15 months before hiring.
Short-term unemployed veterans: Veterans who were unemployed for at least four weeks but less than six months in the year before hiring.
Long-term unemployed veterans: Veterans who were unemployed for six months or more in the year before hiring.
Veterans with service-connected disabilities: Veterans eligible for compensation due to service-related disabilities who were hired within one year of discharge from active duty.
Disabled veterans with unemployment history: Veterans with service-connected disabilities who were unemployed for at least six months in the year before hiring.
In 2021, over 101,806 veterans were hired with WOTC certification, making up nearly 5% of all certified hires under the program [7]. According to Bloomberg Tax, one in five new hires might qualify for WOTC [6].
How Much Credit Can You Get
The amount of credit you can claim depends on the veteran’s specific category and the hours they work. For veterans who work at least 400 hours, employers can claim 40% of up to $6,000 in first-year wages. Veterans working between 120 and 399 hours qualify for 25% of their wages. The minimum threshold to claim any credit is 120 hours worked [2].
Here’s a breakdown of potential credit amounts:
Standard qualified veterans: Up to $2,400 per hire
Veterans with service-connected disabilities: Up to $9,600 per hire
Long-term unemployed veterans: Up to $9,600 per hire
For example, in February 2025, a fast-food franchise leveraged tax credit software to secure $447,000 in WOTC funds, saving 75 hours of administrative time annually [6]. Yet, despite such benefits, an estimated $63 billion in WOTC credits go unclaimed each year, largely because many employers aren’t aware of the program [3].
How to Apply for the Credit
Applying for the WOTC requires timely and accurate documentation. Here’s how to get started:
Pre-screen candidates: Use IRS Form 8850 to determine if a candidate qualifies for WOTC before making a job offer [4].
Submit forms to your State Workforce Agency (SWA): File Form 8850 along with either ETA Form 9061 or 9062 within 28 days of the new hire’s start date [4].
Track hours and wages: Monitor the veteran’s hours worked and wages earned during their first year of employment [4].
Claim your credit: Use IRS Form 5884 when filing your annual tax return. Tax-exempt organizations should use Form 5884-C instead [2][4].
Keep records: Maintain copies of all submitted forms and supporting documents in case of an IRS audit [4].
For additional assistance, contact your local SWA or unemployment office. They can provide lists of veterans who meet WOTC criteria, helping you streamline the hiring process [4].
2. Property Tax Exemptions for Disabled Veterans
Property tax exemptions can lower the assessed value of your property, which directly reduces your annual property tax bill. For disabled veteran business owners, this can mean a significant cut in operating expenses.
"If you're a disabled Veteran, in almost every single jurisdiction, you can petition your local taxing authority and you can have all of your local real estate taxes waived. That's a fantastic benefit." – Mike Frueh, former National Director of the VA home loan program [8]
The savings can add up quickly. For instance, in Virginia, property taxes often hover around $5,000 per year, with some areas exceeding $10,000 annually [9]. These savings could be redirected into expanding your business. Let’s take a closer look at how federal and state programs customize these exemptions to suit veterans’ needs.
Federal and State Programs
Every state in the U.S. offers property tax exemptions for disabled veterans, but the benefits and eligibility criteria vary widely. Your eligibility is typically tied to your VA disability rating, which is measured in 10% increments (0%–100%) [8].
Some states provide full exemptions for veterans with a 100% disability rating. Others use a tiered system. For example:
Connecticut: Starting October 1, 2024, veterans with total and permanent service-connected disabilities qualify for a full property tax exemption [9].
Texas: Veterans with a 100% disability rating are fully exempt, while those with lower ratings receive reductions ranging from $5,000 to $12,000, depending on their disability percentage [8].
Income-Based Benefits
Some states go beyond standard exemptions by factoring in income or age to offer additional savings. For example:
California: Veterans with a 100% disability rating can receive exemptions of up to $175,298. Those earning less than $78,718 annually may qualify for exemptions as high as $262,950 [8].
Alabama: Offers full property tax exemptions for veterans with a 100% disability rating or those over 65 years old, provided the property is their primary residence [8].
How to Apply
Applying for these exemptions requires careful preparation and the right documentation. Here’s what you’ll need:
Your VA Disability Rating Letter
Proof of residency
Valid identification
Start by contacting your county tax assessor's office to confirm local requirements [8]. Once you’ve gathered the necessary documents, submit your application to the county assessor. If approved, the exemption will be reflected in your property tax bill.
Keep in mind that many partial exemptions don’t take effect until the following tax year. For instance, if you apply in 2025, the benefit may not appear on your tax bill until 2026 [8]. Some states require annual renewals, so make sure to reapply if needed. If you were previously denied, it’s worth revisiting your application - states like Pennsylvania have updated their thresholds, which might now make you eligible. For additional benefits, check with your local municipal tax assessor’s office [8].
3. State Tax Programs for Veterans
Beyond federal benefits, many states offer tax programs aimed at easing financial challenges for veterans and supporting their entrepreneurial ventures. These programs differ widely across the country but can result in meaningful savings that complement federal tax advantages.
Organizations such as NaVOBA actively monitor and promote state-level veteran initiatives, encouraging new legislation and expanded opportunities [11].
State Hiring Credits and Wage Programs
Several states provide tax incentives to businesses that employ veterans. For example, Massachusetts introduced the HERO Act in August 2024, which grants small businesses a $2,500 Veteran Hire Tax Credit for hiring qualified veterans [11]. This credit directly reduces the state tax liability for participating businesses.
Illinois also offers generous hiring incentives. Businesses in the state can claim up to $5,000 annually in income tax credits, equivalent to 20% of wages paid to eligible OEF/OIF veterans hired since July 1, 2012. Additionally, Illinois provides an extra credit of up to $1,200 for veterans who served in Desert Storm, OEF, or OIF [12].
The state further supports veteran-owned businesses through procurement initiatives. Illinois mandates that state agencies and universities allocate at least 3% of their procurement budgets to veteran-owned businesses, which translates to over $300 million in state contracts annually. To qualify, businesses must have gross sales under $150 million and be at least 51% veteran- or service-disabled veteran-owned by Illinois residents [12].
Other states have similar initiatives. Alaska offers a 2% bidder preference for businesses that employ veterans and assist transitioning service members [11]. Kansas, through its Statute 73-230, sets a goal of awarding at least 3% of applicable contracts to service-disabled veteran businesses [11]. In 2024, Maryland expanded its veteran support by increasing its procurement goal from 1% to 3%. The state also enhanced its Military Personnel and Veteran-Owned Small Business Loan Program, now offering no-interest loans of up to $100,000 [11].
Business License Fee Waivers
Some states waive or significantly reduce business license fees for veteran entrepreneurs, helping them cut start-up costs. Texas stands out with its generous program, exempting qualified new veteran-owned businesses from franchise tax for five years [10]. This exemption can lead to major savings during the crucial early stages of business growth.
Florida offers extensive fee waivers through its Department of Business and Professional Regulation (DBPR). Honorably discharged veterans applying within 24 months of discharge can have their initial license fees waived across more than 20 professions regulated by DBPR. Veterans can download the waiver form from the DBPR military services webpage and submit it with their application [13].
Florida goes even further, waiving business licensing fees, application fees, and initial unlicensed business activity fees for veterans and their spouses applying within 60 months of honorable discharge. These waivers cover fields like health care, agriculture, and consumer services [15].
Nevada is set to roll out new legislation starting July 1, 2025, waiving state business license fees for up to three years for eligible veterans, gold star family members, or businesses with at least 51% veteran ownership. However, applicants can only claim the waiver for one business [14].
These programs highlight the growing acknowledgment of veterans' contributions to local economies. When combined with federal benefits, state-level initiatives can significantly lower the financial barriers to starting and running a business, allowing entrepreneurs to reinvest savings into growth and development.
4. Tax Filing Benefits for Veterans
Federal and state tax programs provide veterans with specialized filing benefits to simplify the process and reduce costs. From free tax preparation services to exemptions on non-taxable benefits, these initiatives aim to ease the financial and administrative challenges veterans often face.
Free Tax Filing Services
Several organizations offer free tax preparation services tailored for veterans and military members, eliminating financial barriers to filing.
MilTax: Available through Military OneSource, MilTax provides free tax preparation, e-filing, and support for military members, veterans, and their families. This service covers one federal return and up to three state returns with no income restrictions. Eligibility is verified through the Defense Enrollment Eligibility Reporting System (DEERS) [29–31].
IRS Free File Program: Veterans with an adjusted gross income of $79,000 or less in 2023 can access free tax filing options through the IRS Free File program. Many providers also offer free state tax return preparation. To learn more, visit IRS.gov/freefile [16].
TurboTax Military Edition: This platform offers free federal and state tax filing for enlisted active-duty members and reservists with a W-2 from DFAS. Developed with input from military personnel and spouses, it addresses unique tax challenges faced by military filers [33,34].
VITA Program: The Volunteer Income Tax Assistance (VITA) program provides free tax help for lower-income taxpayers, including veterans. Use the VITA/TCE Locator to find local assistance [17].
In addition to these services, understanding which VA benefits are non-taxable can further streamline your tax strategy.
Non-Taxable VA Benefits
Certain VA benefits are exempt from taxation, which can significantly reduce your overall tax liability. Lisa Greene-Lewis, an accountant and tax expert at TurboTax, explains:
"Disability benefits received from VA, such as disability compensation, pension payments and grants for home modifications, are not taxable" [19].
Here are some key non-taxable VA benefits:
Disability Compensation: Payments for service-related disabilities.
Pension Payments: Financial support for low-income veterans.
Education Benefits: Programs like the G.I. Bill, along with training allowances and subsistence benefits, are exempt from federal taxes [35–37].
Other Non-Taxable Benefits: These include veterans' insurance proceeds, dividends, interest on insurance dividends left on deposit with the VA, payments from the compensated work therapy program, and state bonuses for combat zone service [18].
Veterans should review the IRS Veterans tax information page for additional guidance. For those receiving disability benefits, IRS Publication 525 under "Military and Government Disability Pensions" offers detailed instructions. Additionally, veterans who paid taxes on a lump-sum disability severance payment from the Department of Defense due to combat-related injuries should file an amended return to claim a refund.
5. SBA Tax Relief Programs
The SBA offers a range of programs designed to complement federal and state tax benefits, providing veteran-owned businesses with opportunities for growth and financial relief. These initiatives help reduce startup expenses, improve access to funding, and create avenues for federal contracting.
The Veteran Entrepreneur Portal (VEP) serves as a one-stop resource hub for veteran-owned businesses, offering tools to assist with starting a business, securing financing, and navigating federal contracting opportunities [21]. Through the portal, entrepreneurs can access Veterans Business Outreach Centers (VBOCs), which provide business plan workshops, mentorship, and other essential services. Additionally, the Lender Match tool connects veterans with SBA-authorized lenders like First Bank of the Lake. This lender offers perks such as waived packaging fees, a 0.50% interest rate discount, and SBA fee waivers for loans under $1,000,000 [20][23]. Together, these resources build on earlier tax incentives by offering continuous support to help businesses thrive.
Franchise Fee Discounts
Franchise fee discounts offer another way to lower financial hurdles for veteran entrepreneurs. Veterans own approximately 14% of all U.S. franchises [22]. SBA 7(a) loans, which can be used for franchise fees, equipment, and working capital, often come with reduced or waived guaranty fees for qualifying veterans [23]. Eligibility typically requires an honorable discharge, active-duty status with transition assistance eligibility, National Guard or Reserve membership, or qualifying spousal status [26].
Many franchise companies also extend direct discounts to veterans. For example, PuroClean offers a 25% reduction on its initial franchise fee [25]. To qualify for these benefits, veterans generally need to meet SBA requirements, including owning at least 51% of the business, operating as a for-profit entity in the U.S., and adhering to SBA size standards [23].
Accelerated Depreciation Benefits
Veteran-owned businesses can take advantage of Section 179 deductions, allowing them to deduct the full cost of qualifying equipment in the year it’s purchased rather than spreading the cost over several years [1]. This can be a powerful tool for tax planning, especially when paired with large equipment purchases. Additionally, federal contracting opportunities provide further incentives for investment. The federal government reserves at least 3% of its contracting dollars for Service-Disabled Veteran-Owned Small Businesses and aims to allocate 5% of all federal contracting dollars to veteran-owned businesses [1][24].
Veterans should maintain detailed records of their purchases and consult with a tax professional to develop strategies tailored to their needs. Registering with the Department of Veterans Affairs' Vets First Verification Program can also unlock access to exclusive federal contracting set-asides [1]. Beyond new equipment, veteran-owned businesses may acquire federally owned personal property through the General Services Administration's Federal Surplus Personal Property Donation Program, offering a cost-effective way to secure essential business assets [24].
Getting the Most from Veteran Tax Benefits
Veteran entrepreneurs have access to various tax credits and deductions that can help reduce tax burdens and support business growth. These benefits, when used effectively, can make a significant difference in a business's bottom line.
The key to making the most of these opportunities lies in careful planning and keeping detailed records. Many veteran business owners have successfully used these tax advantages to expand their operations and boost revenue, proving the value of a well-thought-out tax approach.
Timing also plays a critical role in maximizing tax benefits. For example, scheduling major equipment purchases to align with Section 179 deductions can optimize current-year savings. Similarly, implementing a pre-screening process for veteran hires ensures compliance with the 28-day deadline for Work Opportunity Tax Credit (WOTC) applications. Additionally, the National Defense Authorization Act of 2024 mandates that all veteran-owned businesses be certified under the SBA VetCert Program by December 22, 2024, to maintain eligibility for certain benefits [24].
State-specific programs offer even more opportunities. In Texas, new veteran-owned businesses can enjoy franchise tax exemptions for their first five years. Meanwhile, New York provides a 6% set-aside for government contracts through its Service-Disabled Veteran-Owned Business Development program [1][27].
As tax laws and incentives continue to change, staying informed is essential. Working with tax professionals who specialize in veteran-owned business benefits can help you navigate these opportunities. By combining federal credits, state incentives, and SBA programs, veteran entrepreneurs can create a robust tax strategy that minimizes liabilities and frees up resources for reinvestment and growth. Take the time to research your state's programs and claim the benefits you've earned.
FAQs
What is the Work Opportunity Tax Credit (WOTC), and how can veteran-owned small businesses use it to save on taxes?
The Work Opportunity Tax Credit (WOTC) is a federal program aimed at motivating businesses to hire individuals from specific groups, including veterans. For veteran-owned small businesses, this presents a great opportunity - by hiring eligible veterans, they can qualify for tax savings ranging from $2,400 to $9,600 per hire. The exact amount depends on factors like the veteran’s employment status and the number of hours they work.
To take advantage of the WOTC, businesses need to submit IRS Form 8850 within 28 days of the new hire’s start date. Staying organized with thorough record-keeping and a solid onboarding process can help ensure all eligible hires are properly documented. Beyond reducing tax liability, this credit also helps provide meaningful job opportunities for fellow veterans.
How can disabled veteran small business owners apply for property tax exemptions?
If you're a disabled veteran running a small business and looking to apply for property tax exemptions, the first step is to confirm your eligibility. To qualify, you’ll need a service-connected disability rating from the Department of Veterans Affairs (VA). Make sure to gather key documents, including your VA disability rating letter and proof of business ownership.
Once you have everything ready, complete your state’s specific application form for property tax exemptions. Since requirements and forms differ across states, it’s important to contact your local tax assessor’s office to get the right paperwork. After filling out the form, submit it to the designated office and follow up to confirm it has been received and is being processed. Processing times can vary, so staying in touch with the office handling your application is a smart move.
What tax benefits are available for veterans in my state, and how can I find out more about them?
Veterans across the U.S. can access a variety of tax perks, but these benefits differ significantly from one state to another. Some states offer property tax exemptions for disabled veterans, while others provide income tax exemptions on military retirement pay or even business tax credits for veteran-owned enterprises. These programs aim to ease financial burdens and support veterans and their families, but the exact benefits hinge on your state of residence.
To find out what’s available to you, check with your state’s Department of Veterans Affairs or explore local government resources. Many states publish detailed guides outlining veteran benefits, including eligibility criteria and application steps. Keeping up-to-date with this information ensures you can make the most of the tax advantages and resources you’ve earned.