Running a small business in Massachusetts isn’t cheap. Between high rent, rising labor costs, and ever-changing tax regulations, staying profitable requires careful financial planning. But here’s a question: Are you taking advantage of every tax break available to you?
Many small business owners unknowingly leave money on the table by overlooking tax incentives designed to lower costs and encourage business growth. Massachusetts offers a wide range of tax credits, deductions, and exemptions that can help businesses save thousands of dollars—but if you don’t know about them, you can’t use them.
This guide breaks down the most valuable tax incentives for small businesses in Massachusetts, who qualifies, how to apply, and how to maximize your savings. Whether you’re a startup, manufacturer, service provider, or retailer, there’s likely a tax break or grant that applies to you.
Let’s dive in.
What Are Massachusetts Tax Incentives, and Why Should You Care?
Tax incentives are financial benefits provided by the state to encourage business growth, job creation, and economic development. These incentives come in several forms:
- Tax Credits – Directly reduce the taxes you owe, dollar for dollar.
- Deductions – Lower your taxable income, reducing your overall tax liability.
- Exemptions – Allow businesses to avoid certain taxes altogether.
- Grants and Funding – Provide financial assistance for business expansion, hiring, and innovation.
Massachusetts is known for its business-friendly tax policies, and taking advantage of these incentives can mean the difference between just surviving and truly thriving.
Key Tax Credits for Small Businesses in Massachusetts
Tax credits are one of the best ways to lower your tax bill because they directly reduce the amount you owe rather than just lowering taxable income.
1. Small Business Energy Exemption
If you’re a small business with five or fewer employees, you may be eligible for an exemption from sales tax on energy use. Given how expensive utilities can be, this can lead to significant savings on electricity and heating costs.
Who qualifies?
- Businesses with five or fewer full-time employees.
- Must register with the Massachusetts Department of Revenue (DOR) to receive an exemption certificate.
2. Economic Development Incentive Program (EDIP) Credit
Thinking about expanding, relocating, or hiring more employees in Massachusetts? The EDIP tax credit provides businesses with a corporate tax reduction in exchange for job creation and investment.
Who benefits most?
- Businesses planning to open a new location or expand operations.
- Companies investing in facilities, equipment, or workforce development.
3. Apprenticeship Tax Credit
If your business hires apprentices in approved fields (such as manufacturing, healthcare, and IT), you can claim up to $4,800 per apprentice in tax credits.
How this helps:
- Offsets training costs for skilled workers.
- Encourages long-term workforce development.
4. Research & Development (R&D) Tax Credit
If your business is developing new products, software, or processes, you might qualify for the Massachusetts R&D Tax Credit, which can significantly reduce your state tax liability.
What qualifies?
- Wages paid to employees involved in R&D.
- Expenses related to testing, prototypes, and software development.
5. Investment Tax Credit (ITC)
Businesses investing in new equipment, machinery, or property may qualify for a 3% tax credit on eligible investments. This is particularly valuable for manufacturers, construction firms, and technology companies.
Deductions and Exemptions That Lower Your Tax Burden
Tax deductions and exemptions reduce taxable income, allowing businesses to keep more of their hard-earned money.
1. Business Equipment Sales Tax Exemption
Purchasing computers, machinery, or essential business equipment? Massachusetts offers a sales tax exemption on qualified business purchases, making it cheaper to invest in your operations.
Best for:
- Manufacturing companies
- R&D firms
- Small businesses upgrading equipment
2. Work Opportunity Tax Credit (WOTC)
If your business hires employees from specific groups, such as veterans or long-term unemployed individuals, you may qualify for a federal and state tax credit of up to $9,600 per hire.
3. Local Property Tax Exemptions
Some Massachusetts cities and towns offer property tax reductions for businesses in designated development zones. Check with your local assessor’s office to see if you qualify.
Grants and Funding Opportunities for Small Businesses
Beyond tax credits, Massachusetts provides direct funding options to help small businesses grow.
1. Massachusetts Growth Capital Corporation (MGCC) Grants
MGCC provides grants and loans for women-, minority-, and veteran-owned businesses, as well as those in underserved communities.
2. Workforce Training Fund Program
If you’re investing in employee training, this state program offers matching grants of up to $250,000 to cover training costs.
3. Local and Regional Grant Programs
Many cities in Massachusetts offer local business grants for expansion, hiring, or community impact projects. Check with your local Chamber of Commerce for opportunities.
How to Apply for Massachusetts Tax Incentives
Step-by-Step Process to Maximize Your Benefits:
- Determine which incentives apply to your business. Consult a CPA or tax expert to ensure eligibility.
- Gather necessary documentation. This may include payroll records, investment receipts, or proof of business expansion.
- Apply through the proper agency. Most tax credits and grants require submission to the Massachusetts DOR or the Massachusetts Office of Business Development.
- Keep detailed records. If audited, you’ll need to provide documentation to support your claims.
- Work with a Virtual CFO or CPA. Professional guidance ensures you’re taking advantage of every available tax benefit while remaining compliant.
Don’t Leave Money on the Table
Massachusetts provides powerful tax incentives that can help lower your tax bill, increase cash flow, and grow your business. Yet, many business owners either don’t know about these programs or assume they don’t qualify.
By working with a CPA or Virtual CFO, you can ensure you’re:
- Maximizing available tax credits.
- Lowering taxable income with deductions.
- Taking advantage of grants and funding programs.
Need help navigating Massachusetts tax incentives? Schedule a consultation today to ensure you’re not leaving thousands of dollars on the table.