What is a Tax Credit?
The complexity and confusion surrounding tax preparation can be daunting, especially if you’re running a business. Not only are there a number of additional variables to consider when dealing with an entire organization’s taxes, but there are also a ton of missed opportunities – money-saving maneuvers that can slash thousands of dollars off a company’s total annual tax bill.
They’re called tax credits, and you’ve likely already heard of them: discounts to the money a business owes to the government that can be applied if certain eligibility requirements are met.
Tax Credits for Small Businesses
Tax credits are incentives that the government provides to encourage companies to behave in a way that positively impacts their workforce, environment, or the community around them. If businesses prove that they performed the requirements for each tax credit at the time they file with the Internal Revenue Service (IRS) every year, they can fill out the appropriate form and get rewarded with a lower tax bill.
When an organization chooses to purchase a company vehicle that’s powered by alternative energy, for example, they can claim up to $4,000 in as part of the “Alternative Motor Vehicle Credit” – which is subtracted directly from the taxes they owe for the year.
Are Tax Credits the Same as Tax Deductions
Tax credits are frequently confused with tax deductions, which don’t function in the same way. Deductions allow businesses to subtract from their total taxable income – reducing what the government will be able to tax. Meanwhile, tax credits are directly applied to the money a company owes, cutting the actual tax bill on a dollar-for-dollar basis.
Types of Business Tax Credits
There are a ton of tax credits offered by the federal government. All of these have a list of unique requirements and their own individual forms to complete in order for a business to successfully claim them.
And the lengthy list of national business tax credits doesn’t include the various different incentives offered by each of the 50 states, which differ from the credits that can be claimed at the federal level. On top of that, cities offer their own tax incentives to attract businesses, keep them in town, and encourage them to expand. After all, the jobs and spending that small businesses generate have a huge impact on local economies.
Claiming Business Tax Credits
Taking advantage of a business tax credit is a pretty simple process on its face. On the federal level, for instance, a firm just needs to complete the form for the specified credit. The Disabled Access Credit, as an example, is Form 8826. In addition to the specific tax credit forms, each business – in most cases – will have to fill out the General Business Credit form (Form 3800).
If an organization reaches the maximum limit of tax credits it can claim for a full year, it has the right to retroactively apply the overflowing credits to their tax bill from the previous year – but only if the previous year’s credits weren’t maxed out. Carrying tax credits backward like this can be huge in additional savings for countless companies. On the flip side, the excess credits can also be carried into the next tax year, which is referred to as a “carryforward.”
At face value, it sounds like a quick and easy process, but just one glance at any tax credit form will shatter such an illusion. With dozens upon dozens of lines to consider and fill out, combined with requests for numerous references to other documents, claiming just a single business tax credit is an arduous and complicated endeavor. Add a few more tax credits to the mix and we’ve got an absolute mess to deal with each year.
Why a Reliable Enterprise Solution is the Best Way to Go
The hard truth is that many businesses out there are overpaying on their taxes, which can often be attributed to an incomplete understanding of what tax credits their organization can legally claim combined with a lack of expertise when it comes to efficiently managing and submitting them all.
But who can blame them? There are federal, state and local tax credit possibilities to juggle, many of which require pre-planning to successfully claim, and each additional layer of confusion amplifies the risk of overpaying the government what it’s truly owed.
This is why business owners need to work smarter, not harder, and shift their tax credit worries onto an established and reliable partner – like The OIX. Organizing and efficiently seizing every single possible tax credit available requires a world-class, seasoned enterprise software provider. After years of experience saving its client organizations money with their next-generation tax credit and incentive software, The OIX has refined and perfected their unique solution.
The countless, variable qualifications and limits that each tax credit entails are too often left in the hands of tax professionals who can’t maximize financial benefits year after year. The OIX takes the chaos and inefficiency out of the equation by streamlining the management, reporting, forecasting, analysis, workflow, monetization and compliance processes for tax credits and incentives on a global scale. They are even equipped to fully prepare your business for the upcoming FASB regulations, which add a whole new complication to the compliance equation.
Partnering with a leading tax credit management expert, like The OIX, is the simplest and surest way to ensure that a business is doing their taxes efficiently – and generating additional savings that could otherwise be missed out on.