Make The Most of Tax Credits This Season
When tax season rolls around, most business owners want the process to be over with as soon as possible.
Unfortunately, rushing through your tax preparation puts you at an increased risk of not only making a mistake — but also missing out on potential credits that could help you keep more money in your company’s pockets.
That’s why we’re here to ease any anxiety and confusion. Let’s take a look at what tax credits are and how your business can get the most out of them this season!
What are tax credits?
Tax credits are often grouped alongside tax deductions, but they aren’t quite the same thing.
Both help you pay less to the government, but they do it in different ways: tax deductions are taken off of your entire pre-tax income, while tax credits are taken directly off of the amount of taxes you actually owe.
Here are a few examples of how this works.
If you make $65,000 a year and can claim $5,000 in tax deductions, the IRS will only tax you on $60,000. That’s how a tax deduction is taken off of your total pre-tax income earned.
If you’ve gone through your taxes and realize that you owe the government $2,000 but can also claim $2,000 in tax credits, everything cancels out and your tax debt goes away. That’s how a tax credit is taken off of the actual taxes you owe — it reduces the amount you have to pay to the IRS, dollar for dollar.
A select few tax credits are actually refundable, which means that the government pays you even if you don’t owe them any taxes in the first place. Nonrefundable tax credits, on the other hand, can only bring your taxes owed down to zero.
Either way, tax credits can save your business a lot of money each year — but the key is to plan and prepare before you actually start filing.
How can you get the most out of potential tax credits?
You can do a few things to make sure your business gets the most out of potential tax credits.
Know what tax credits are available
One of the most difficult parts of taking advantage of tax credits is simply understanding what ones are available to your unique business. To do this, you need to have a complete grasp of your company’s operations and familiarity with the US tax code.
Some tax-savvy business owners can pull this off on their own, but we always recommend double-checking with a professional to make sure you’re getting the most benefit.
Prepare the necessary paperwork in advance
No one likes running around at the last minute. One of the best things you can do to ensure tax season goes smoothly for your company — and that you’re able to take advantage of all available tax credits — is to start putting your paperwork together ahead of time.
Keep track of what materials you’ll need to send the IRS to claim your credits, and compile them as early in the new year as possible. This way you’ll be prepared when it comes time to file and can handle small delays if they inevitably pop up.
Work with an experienced professional
Working with an experienced tax professional can help your business take advantage of every tax break available. Professionals understand tax code inside and out, making them an invaluable resource to save you time researching and making sense of the complicated landscape.
What’s more — beyond just saving money, you can also rest assured that your taxes will be prepared accurately without any time-consuming mistakes.
When building a partnership with an accounting firm, it’s important to adopt full transparency with them. Most business owners naturally consult with their CPAs on large financial decisions, but many of the small day-to-day details can make a difference when it comes time to file your taxes, too.
No topic is off the table — be sure that your chosen accountants fully understand all facets of your business so they’re properly equipped to help you make the best financial moves.
At Feld, Schumacher & Company, we’re constantly surrounded by tax preparation — as soon as one tax season ends, we start getting ready for the next. Get in touch with us today to see how we can help your business!