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Tax Advice Series: Part Four
Claiming Business Credits and Deductions
Tax credits and deductions can be a great way to save money when you own and operate a business. However, it's important to note that not all tax credits and deductions are applicable to every business. It's essential to understand the differences between them and to choose the ones that are most beneficial to your specific business.
In this blog, we'll explore the importance of selecting the right business tax credits and deductions, and how they can help you save money and increase your overall profitability. We'll also discuss some of the most common credits and deductions, and how to make sure that you're selecting the ones that are most advantageous for your business. First, it's important to understand the difference between a tax credit and a deduction. A tax credit is an amount of money that you can subtract from your total tax bill. This means that if your total tax bill is $10,000 and you have a $1,500 tax credit, your tax bill will be reduced to $8,500. A deduction, on the other hand, reduces your taxable income. This means that if you have a taxable income of $50,000 and you have a $1,500 deduction, your taxable income will be reduced to $48,500.
When selecting credits and deductions for your business, it's important to make sure that you are taking advantage of all the ones that you are eligible for. For instance, if you are a small business owner, you may be eligible for the Small Business Health Care Tax Credit, which can help you cover the cost of providing health insurance to your employees. Additionally, you may be eligible for deductions such as the Home Office Deduction, which allows you to deduct a portion of your home expenses that are related to running your business.
Finally, it's important to remember that the selection of business tax credits and deductions is ever-changing, so it's important to keep up with the most recent changes. You can do this by regularly consulting with a tax professional, or by staying up-to-date on the most recent changes in the tax code.
Choosing the right business tax credits and deductions can be a great way to reduce your overall tax bill and increase your profits. By understanding the differences between credits and deductions, and making sure that you are taking advantage of all the ones that you are eligible for, you can ensure that your business saves money and remains profitable.
Thank you to Timothy Okeowo, MBA, EA from Victory Tax & Accounting Services