For most business owners, the term "tax credit" signifies something good, but they are not sure what the term really means, and tax credits are often confused with tax deductions. As you will see, tax credits are better than deductions. Also explained in this article are some of the most common tax credits that businesses can use to lower taxes.
As you read through the list, be aware that all of these credits come with limits and qualifications that you must meet in order to receive the credit. Read carefully, and discuss possible tax credits with your tax preparer or tax advisor.
1. What is a Tax Credit?
Tax credits are given to businesses and individuals as incentives for certain kinds of activities. For example, businesses can get tax credits for purchasing energy-efficient vehicles and building with "green" products. Usually a tax credit is offered for a specific time period, ending after that time has ended.2. What's the Difference Between Tax Credits and Tax Deductions?
Tax credits are superior, in terms of tax savings, to deductions. Tax credits are deducted from income before gross before-tax income is determined. Tax deductions are taken in the next step of the tax process, reducing the net taxable income. Read more about how both tax credits and tax deductions work.3. Work Opportunity Tax Credit
Your busniess can receive a Work Opportunity Tax Credit for hiring certain types of individuals in targeted groups, such as youth workers, disabled veterans, and workers who are in receiving food stamps. The Tax Relief Act of 2010 extended this credit for four additional months, through December 31, 2011. Then it will expire, unless extended by Congress.
See the complete list in the article.
4. Disabled Access Tax Credit
If you make changes to your business location to accommodate employees and customers with disabilities, you may be eligible for disabied access tax credits.
5. Energy Efficiency/ Environmental Friendly Tax Credits
Making changes to your business location to make it more energy efficient or more environmentally "friendly" can benefit you through tax credits. In addition to the tax credits, you may also be eligible for tax deductions for other energy/environmental costs.
8. HIRE Act (Jobs Bill) Tax Credits for Hiring Workers
HIRE Act tax credits were only available through December 31, 2010. Incentives are not available for hiring employees in 2011 or beyond.
If you hired previously unemployed workers in 2010 and you did not take advantage of this credit, you may still be eligible. Check with your tax advisor.
