Getting credit when credit is due is always satisfying--especially if you're calculating your federal tax liability. While tallying up tax deductions trims your tax bill, earning tax credits saves you even more.
"A dollar's worth of tax credit reduces your tax bill by one dollar, but a dollar's worth of deductions [only] lowers your tax bill by whatever percent your tax bracket is. If you're in the 28 percent tax bracket, for example, a tax deduction saves you 28 cents,' explains Susan Jacksack, a small-business analyst with CCH Inc., a Riverwoods, Illinois, provider of legal, tax and business information.
In light of this, entrepreneurs are advised to be on the lookout for tax credits they can use. "We are quite convinced that many business owners don't claim their share of tax credits,' says Thomas P. Ochsenschlager, a partner in accounting firm Grant Thornton. That's because they don't think they qualify or they're put off by the complexity of claiming a specific credit.
Ochsenschlager cites the research and development (R&D) credit and the welfare-to-work credit as two that are often overlooked by business owners. "We find this to be the case when we get new clients who were previously with small, local accounting firms. [Accountants] don't seem to be very aggressive in trying to qualify their clients for credits,' he maintains. That's unfortunate, because it means a loss of some valuable tax savings.
Joan Szabo is a writer in Great Falls, Virginia, who has reported on tax issues for more than 12 years.