How can a tax credit have such a big impact? If you aren’t taking advantage of tax credits, you could be leaving significant money on the table.
Tax Credits have a significant positive impact on all types of "for-profit" companies. Following are some of the most noteworthy advantages of tax credits:
Direct reduction of taxes due - Unlike a deduction, a tax credit is a direct reduction of the taxes due.
Allowable for all for-profit companies - Tax credits may be used by all for-profit companies including "C" corporations, "S" corporations and Limited Liability Corporations (LLC).
Offsets the AMT - The Work Opportunity Tax Credit can offset the Alternative Minimum Tax!
Carry forward - Many tax credit programs allow companies to carry credits up to 20 years forward.
Tax Credit impact specific to "S" corporations and LLCs:
Flow Through - The tax credit would flow through directly to the shareholder who may take the credit off his/her personal taxes.
Net Operating Loss (NOL) - "S" corporations and LLCs with a net operating loss (NOL) may still take advantage of the credit since the credit is taken off of personal taxes.
Tax Credit impact specific to "C" corporations:
Corporate Tax - In a "C" corporation, the tax credit must offset tax liability at the corporate level.
Net Operating Loss (NOL) - In the event of a net operating loss (NOL), "C" corporations usually may not use the federal credits since there will be no tax liability to offset. Although, many of the credits can be carried forward 20 years to offset future tax liability.
