Running a business in Texas is no small feat. From managing payroll and operations to navigating complex financial regulations, small business owners wear many hats. Fortunately, the federal and state governments offer a range of small business tax credits that can ease the financial burden and reward innovation, sustainability, and employee investment. For 2025, several key tax credits stand out as valuable opportunities for Texas entrepreneurs looking to reduce their tax liabilities and reinvest savings into growth. Below, we’ll explore the top tax credits available this year, how to qualify, and what you can do to maximize your benefits.
Understanding Small Business Tax Credits
Tax credits differ from tax deductions. While deductions reduce your taxable income, credits directly lower your tax bill, dollar for dollar. For example, a $5,000 credit reduces your tax liability by $5,000, making credits especially powerful tools for lowering overall costs. Federal credits typically apply nationwide, but Texas-based businesses can also benefit from state-specific incentives that promote job creation, research, energy efficiency, and local economic growth.
In 2025, the economic climate remains competitive, and tax credits play a vital role in improving cash flow and offsetting costs tied to innovation, workforce development, and sustainability. Below are the most impactful programs to consider this year.
1. Research and Development (R&D) Tax Credit
The Research and Development (R&D) Tax Credit is one of the most valuable incentives available to Texas businesses engaged in innovation. If your company invests in creating new products, improving existing processes, or developing proprietary software, you may qualify for substantial tax savings.
What It Covers:
- Wages paid to employees conducting qualified research
- Supplies used in the research process
- Contract research expenses paid to third parties
Texas-Specific Benefit:
In addition to the federal credit, Texas offers its own version through the Texas R&D Franchise Tax Credit. Businesses can claim either a sales tax exemption on certain research-related purchases or a franchise tax credit for qualified research activities performed within the state.
Why It Matters in 2025:
With technology and innovation fueling growth across industries, more Texas companies, from energy firms to tech startups, can qualify. The state’s R&D credit helps foster local innovation and keeps intellectual capital within Texas borders.
2. Work Opportunity Tax Credit (WOTC)
The Work Opportunity Tax Credit encourages employers to hire individuals from specific target groups who face barriers to employment, such as veterans, long-term unemployed individuals, or recipients of public assistance.
How It Works:
Employers can receive between $1,200 and $9,600 per qualified employee, depending on the category and hours worked. To claim this credit, you must file IRS Form 8850 and submit certification requests to the Texas Workforce Commission within 28 days of the employee’s start date.
Texas Perspective:
Texas businesses benefit heavily from WOTC since the state’s diverse workforce includes many eligible job seekers. For small companies, this credit can offset the costs of onboarding and training new employees, turning hiring incentives into measurable savings.
3. Small Business Health Care Tax Credit
Health care is one of the biggest expenses for small employers. Fortunately, the Small Business Health Care Tax Credit helps companies that provide health insurance to their employees through the Small Business Health Options Program (SHOP) Marketplace.
Eligibility Requirements:
- Fewer than 25 full-time equivalent employees
- Average employee wages under $56,000 annually
- Employer pays at least 50% of premium costs
Credit Details:
The credit can cover up to 50% of employer-paid premiums (35% for tax-exempt employers). While it’s only available for two consecutive years, it offers significant relief for small businesses that prioritize employee benefits.
Why It Matters in 2025:
Health coverage remains a competitive advantage in attracting talent, especially in Texas’s booming small business economy. Offering benefits not only boosts morale but can reduce turnover and increase loyalty.
4. Disabled Access Credit
Texas values accessibility and inclusion, and the federal Disabled Access Credit supports that mission. This credit encourages small businesses to remove barriers and make their facilities and services accessible to individuals with disabilities.
Who Qualifies:
Businesses with gross receipts of $1 million or less or fewer than 30 full-time employees.
Credit Amount:
Covers 50% of eligible expenses between $250 and $10,250, with a maximum credit of $5,000 per year.
Eligible Costs Include:
- Removing physical barriers in facilities
- Providing interpreters or readers
- Acquiring adaptive equipment or assistive technologies
- Producing accessible digital content or materials
For Texas businesses in customer-facing industries, like hospitality, retail, and professional services, this credit not only ensures ADA compliance but also improves brand reputation and customer experience.
5. Energy Efficiency and Renewable Energy Credits
As Texas continues to invest in renewable energy, the federal government provides robust incentives for businesses that go green. The Investment Tax Credit (ITC) and the Energy-Efficient Commercial Buildings Deduction (Section 179D) are two key programs that help offset the cost of sustainability upgrades.
Investment Tax Credit (ITC):
Applies to solar energy systems, fuel cells, and certain wind or geothermal installations. Businesses can claim up to 30% of installation costs through 2032 under current law, which still holds in 2025.
Section 179D Deduction:
Rewards energy-efficient building improvements such as lighting, HVAC, or insulation. Qualifying projects can yield deductions of up to $5.00 per square foot, depending on the level of energy savings achieved.
Texas Advantage:
With abundant sunshine and favorable regulations, Texas businesses can maximize these credits by installing solar panels or upgrading facilities to meet energy-efficient standards. Reducing energy costs improves margins while strengthening your brand’s environmental responsibility.
6. Employer-Provided Child Care Credit
Work-life balance is becoming increasingly important for Texas’s workforce, and companies that support employees with children can qualify for the Employer-Provided Child Care Facilities and Services Credit.
Credit Details:
Businesses can claim up to 25% of qualified expenses for providing child care services or facilities for employees, plus an additional 10% for resource and referral services. The total annual cap is $150,000 per business.
Benefits for Texas Businesses:
Employers in high-growth urban centers like Dallas, Houston, and Austin can use this credit to attract and retain working parents. Offering on-site or subsidized child care can enhance productivity and reduce absenteeism.
7. Employee Retention Credit (ERC) – Retroactive Claims
Although the main ERC program ended in 2021, businesses can still file retroactive claims through amended payroll tax returns in 2025, provided they meet the criteria.
Who Qualifies:
Businesses that experienced significant declines in revenue during 2020–2021 or faced operational disruptions due to government orders may still be eligible.
Potential Refunds:
Credits can reach up to $26,000 per employee, depending on qualified wages and eligibility periods.
Texas Relevance:
Thousands of Texas small businesses were impacted by the pandemic, and many still haven’t claimed their refunds. Working with a tax advisor ensures that all eligible credits are captured before filing deadlines expire.
8. Texas Enterprise Zone Program
This state-level incentive rewards companies that invest in economically distressed areas or create new jobs for Texas residents.
Program Highlights:
- Refunds on state sales and use taxes for eligible projects
- Credits vary based on capital investment and job creation levels
- Administered by the Texas Economic Development Bank
Why It’s Valuable:
For small businesses expanding operations, relocating, or opening new facilities in designated Enterprise Zones, this program provides meaningful financial relief while supporting community development.
9. Employer-Provided Educational Assistance
In a knowledge-driven economy, employee training is key to long-term growth. Under IRS Section 127, businesses can provide up to $5,250 per year in educational assistance per employee tax-free.
Eligible Expenses:
- Tuition and fees
- Books and supplies
- Online or classroom courses related to the employee’s role
Why It’s Important:
Texas employers can use this credit to upskill staff, enhance productivity, and stay competitive without bearing the full financial burden. It’s a win-win: employees gain valuable skills, and businesses benefit from an improved workforce.
10. New Markets Tax Credit (NMTC)
The New Markets Tax Credit is a federal program designed to stimulate investment in low-income or underserved communities. Businesses that invest in qualified community development entities (CDEs) can receive a credit equal to 39% of the investment spread over seven years.
Texas Opportunity:
Texas has numerous designated low-income communities that qualify for NMTC projects. Small businesses participating in these initiatives can receive both financial benefits and positive social impact recognition.
11. Texas Skills Development Fund
While technically a grant program rather than a tax credit, the Texas Skills Development Fund offers training reimbursement to businesses that develop customized workforce training in partnership with local community colleges.
Program Highlights:
- Covers up to 100% of training costs
- Supports new and incumbent worker training
- Prioritizes high-demand industries
This program complements tax incentives by improving operational efficiency and strengthening the talent pipeline across Texas industries.
12. Bonus Depreciation and Section 179 Expensing
The Tax Cuts and Jobs Act (TCJA) and subsequent updates have extended generous depreciation rules for small businesses.
Section 179 Expensing:
Allows businesses to deduct up to $1.22 million of qualifying equipment or software purchased in 2025.
Bonus Depreciation:
Provides a 60% immediate deduction of qualified property placed in service during the year.
Texas Relevance:
Manufacturing, logistics, and service-based businesses in Texas can leverage these deductions to modernize equipment and improve operational capacity without waiting years to recover costs.
13. Hiring and Retention Credits for Veterans
Veteran employment remains a priority for both federal and state programs. The WOTC includes categories for hiring veterans, but Texas also promotes veteran employment through additional hiring incentives and grants.
Benefits Include:
- Federal WOTC credits up to $9,600 per hire
- Access to Texas Veterans Commission employment programs
- Preferential bidding status for veteran-owned businesses
Supporting veterans is not only socially responsible but also beneficial for companies seeking disciplined, experienced employees.
14. Renewable Diesel and Biodiesel Fuel Credits
Texas is a leader in energy production, including renewable fuels. The Renewable Diesel and Biodiesel Credits offer tax advantages to businesses that produce, blend, or sell these environmentally friendly fuels.
Credit Overview:
The federal biodiesel mixture credit provides $1.00 per gallon of biodiesel or renewable diesel used in producing a qualified fuel mixture.
Who Benefits:
Transport, logistics, and fuel distribution companies throughout Texas can use this credit to lower fuel costs while advancing clean energy goals.
How to Maximize Your Tax Credit Benefits in 2025
Understanding which credits apply to your business is only half the battle. To maximize your return:
- Maintain detailed records: Keep meticulous documentation of all qualifying expenses, wages, and activities.
- Work with a qualified tax advisor: Partnering with professionals ensures compliance with both federal and Texas state tax laws.
- Plan early: Many credits have strict application deadlines or certification requirements.
- Combine credits strategically: Some programs can be stacked to optimize savings without triggering disqualifications.
The Value of Professional Tax Guidance
The tax credit landscape changes frequently, with updates to eligibility criteria, deadlines, and rates. Working with experts who understand Texas’s unique business environment ensures you don’t leave money on the table.
That’s where Lien Phat & Co Tax Advisory comes in. With over 22 years of experience, our firm has helped countless Texas entrepreneurs identify, claim, and maximize small business tax credits that fuel growth and stability. Founded by Patrick Huynh, we specialize in strategic business planning, back-office support, and executive-level financial consulting. Our team focuses on uncovering hidden opportunities to make your operations more efficient, compliant, and profitable.
Contact Us Today
In 2025, Texas small businesses have more opportunities than ever to leverage tax credits for financial growth. Whether you’re investing in research, hiring new talent, or going green, each incentive can significantly improve your bottom line. However, understanding and applying these credits correctly requires expertise and proactive planning.
At Lien Phat & Co Tax Advisory, our business is helping your business succeed. Whether you need help with business planning, back office support, or want to take your company to the next level, we offer the expertise and dedication you need. Let us help you identify every available tax advantage so you can focus on what matters most: growing your business.
Contact us today to schedule a consultation and discover how our advisory services can help your business thrive in 2025 and beyond.