There are two ways to decrease your tax liability. The first way is to increase your tax deductions and the second is to pay attention to tax credits.
What are Tax Credits?
Tax credits are credits provided by your state or local government to reduce the income tax you owe. Tax credits work in your favor and are generally designed to encourage or reward certain types of behavior that are considered beneficial to your state or local government (either to boost the economy or to lessen the burden on the environment). Most often, the tax will credit the cover expenses you pay during the year (such as the cost to install solar panels), but you must meet certain criteria before claiming them.
Unlike tax deductions which reduce your taxable income, tax credits are deducted directly from your tax burden. Rather than decreasing your taxable income, you can use tax credits to receive a dollar amount reduction in your tax liability.
Federal Tax Credits
Federal tax credits available for businesses include the general business credit, investment credit, employer-provided childcare and facilities, the Indian employment credit, and more. If your business is eligible for more tax credits than you can legally take that year, you can either:
- Apply the tax credit to previous years when you did not exceed your credit limit to receive a retroactive refund.
- Carry the balance forward and apply them to the next tax year.
State Tax Credits
States often offer tax credits to encourage economic growth and business investments. Each state will have tax credits that provide for businesses that increase employment, utilize local resources, or own/operate their business in underdeveloped cities and regions. Check your state’s treasury department or chamber of commerce for information on what state and local tax credits are available.
Many businesses are used to recording their deductions carefully. However they neglect to explore which tax credits are available. Make sure you speak with your accountant to ensure that you have applied any and all applicable tax credits that will benefit your business.
Estess CPAs provide permanent solutions to IRS and state tax problems for taxpayers. Since 2001. Estess CPAs has been helping businesses and individuals succeed. With two locations to serve you, Estess CPAs have the expertise and credentials of larger firms without compromising the personal service our clients have come to appreciate.
At Estess CPAs, we believe information and planning enhance success. Specializing in small business solutions, we believe the key to successfully managing any business starts with well-informed accounting and payroll systems. Accurate and timely data empowers companies to analyze and react to upcoming needs and changes. Our professionals are experts at keeping accounting systems and payroll processes running smoothly.
Estess & Associates, LLC
Small Business Services
7822 Highway 23
Belle Chasse, LA 70037
Estess & Company, LLC
Certified Public Accountants
128 Lakewood Drive
Luling, LA 70070