If you’re new to the world of small business, you may not know that you’re entitled to claim tax credits that can lower the amount of tax you pay to the government. As part of their annual tax filing procedure, many different sized businesses file for tax credits and tax deductions each year; continue reading to find out more:
Small business tax credits and why they were created:
When individuals and businesses perform acts of varying sizes, such as strengthening the economy, combating climate change and helping to improve the lives of others, global governments reward them with tax credits. Reducing the actual tax small business owners pay and offered as an incentive for activities deemed beneficial, it’s important that small businesses check which credits they might be eligible for, as they can make a significant difference to their bottom line.
To put this in simpler terms, for every dollar you gain in credit, your tax is reduced by a full dollar, and this can be immensely helpful in enabling small businesses to recover some of their running costs and cling on to much needed capital.
Adding up quickly, let’s say your small business owes $15,000 in taxes, but you make a claim for $5,000 in tax credits; you can subtract that entire amount from your tax bill and reduce it to $10,000!
Why it pays to understand your tax credits:
If you want your small business to succeed and prosper, then it really does pay to understand tax credits and know which ones you might be eligible for, as doing so can save you serious dollars. The best way to get the most from your small business tax credits is to work with a tax specialist, who will make it their business to get the best results for your business.
So, what’s the difference between tax deductions and tax credits?
Small business owners receive a tax deduction for all business-related expenses they claim on their taxes, ranging from rent and supplies, to travel and business-related subscriptions. Reducing your taxable income (depending on your tax bracket), every dollar of deductions reduces your total tax bill by a percentage of that deduction, meaning that as your taxable income rises, your tax deductions become more valuable. If your business is in the 15% bracket, then every dollar you deduct reduces your tax bill by 15 cents, and if you’re in the 35% bracket, that same deduction reduces your bill by 35 cents.
Tax credits, on the other hand, are far more valuable – especially for taxpayers in lower brackets – as they slash your tax by a full dollar for every dollar of credit.
To find out what tax credits your small business might be eligible for, schedule an assessment with a tax professional and start saving money on your tax bill, today.