Business tax credits
What are Business Tax Credits?
There are several types of tax credits that are available to businesses and corporations. They are intended to allow companies, who remain in business over the course of multiple years, as an incentive and bonus for remaining in operation.
Business tax credits are an amount that companies can subtract from the taxes owed to a government. Business tax credits are deductions used to reduce taxable income and they’re applied against the taxes owed by businesses filing their annual tax return. In the United States, the Internal Revenue Service oversees taxation matters concerning business tax credits as the credits are used to offset a company’s financial obligation to the government.
Understanding Business Tax Credits
Business tax credit is a generic way of referring to credits given by the government that are meant to incentivize a certain action or behavior within your company. They come in all shapes and sizes, but some of the more common business tax credits include ones that reward and encourage activities such as hiring people with barriers to employment, investing in research, upgrading buildings to be more energy efficient, etc. Since the government realizes there are not enough incentives for businesses to do those things already often enough, they’re offering you credits if you take the initiative to help out!
Business tax credits are built to help businesses reduce the amount of money they pay at tax time. Without the credits, the government would be collecting much more in taxes than they actually end up taking from businesses. It’s in a business’s best interest to make use of every available credit possible so that they can reduce their tax liability, making it easier on all parties involved!
Business tax credits are often a helpful tool for reducing taxes and creating more savings opportunities for businesses. If a business has limited their spending to the amount of tax credits they can use in one year, but have too much money left over, they may be able to carry forward those unused amounts into the following tax period by placing them on their next year’s tax return.
Likewise, if, in that particular first year, the business had fewer tax credits than allowed in the filing period then there is what is referred to as a carried-backward credit that allows this amount to be applied toward prior years returns.
Business Tax Credits Versus Business Tax Deductions
Business tax credits can be confusing because they often resemble business tax deductions. The main difference between the two is that deductions are used to reduce your taxable income and credits directly reduce the amount of taxes you owe on your total income.
We are excited you are interested in learning more about business tax credits. If you are ready to start applying for business tax credits, or if you have any questions about how Dosh Funding can help your business, reach out to us directly at 718-500-DOSH. We would love to hear from you and discuss how we can get you started with your business tax credits.