View Full Version : What do you know about tax credits?

04-09-2009, 11:40 PM
I'm working on an article for our local newspaper about tax credits and a lawsuit and guys with lots of money and our little city who is always broke and... anyway - it's still a bit of a muddled mess.

I have never really thought about tax credits before I started working on this article - sure I take the $1k tax credit for my baby girl and etc... but I've never really looked at what tax credits actually were and how they worked. I'm finding that bit of my research to be quite interesting.

So... what do you know about tax credits? Do they significantly impact the income of the state/county/city that gives them to businesses as an incentive to get that business to build in their town? Are they good, bad, indifferent? Do any of you get to take advantage of the tax credits for business? What percentage of tax credits that are issued actually end up with small businesses? Are there any questions I'm missing?

04-10-2009, 12:01 AM
I'm hardly a tax expert, but I do take advantage of every credit I get personally. At least the ones I know about. Fortunately for me I have a brother who's an account and knows about a few that I would have missed.

On a state and city level they definitely affect business in the area. I tend to think it has more of an impact on larger business than small. I'm going to live where I live and probably won't ever choose to live somewhere based on the local taxes. However I think others would include tax credits in the decision to locate their business and themselves.

Many larger businesses will certainly look into taxes when deciding where to build.. All the time you hear of cities competing to bring a big corporation to their area. I know I've voted a few times on tax issues that were specifically to attract business to Colorado.

I think they can be a good way for cities and states to attract revenue. There has to be a balance though. You can offer too much in incentives to attract a business where in the end you don't have a net gain.

04-10-2009, 12:38 PM
Tax credits and incentives for business are a big issue in my state (Michigan) right now. Particularly in the area where I live, Northern Michigan, where a lot of the businesses are smaller and family owned. If we want the area to grow and prosper we need to bring in some bigger companies and one way to do that is tax incentives.

04-10-2009, 11:22 PM
There are a lot of credits that exist, on the state and federal level. As each state is unique in what they offer, it'd be difficult to discuss those. But there are a lot of "random" credits that are valuable if you are eligible.

The biggest benefit of tax credits is that it is a dollar-for-dollar reduction in taxes. If you had a $1,000 tax liability -- a $100 tax credit lets you adjust that liability to $900. There are also adjustments to gross income which reduce how much money is taxed. A lot of these are also beneficial as well. The main ones applying to small business people include: one-half of self-employment tax (sole proprietorship and partnerships); contributions to SIMPLE or SEP plans; the cost of self-employed health insurance (which includes S-Corps); and traditional IRA contributions. Depending on your industry, you may qualify for the domestic production activities deduction.

Federally, there are several credits:

Earned Income Credit. This provides qualified low-income people with assistance. The eligibility is stringent and the main criteria is income.
Child and Dependent Care Credit. If you (and if married, you and your spouse) both work and incur expenses to care for children under the age of 13, you may get a credit of up to 35% of your expenses not exceeding $3,000 per child or $6,000 amongst all children.
Adoption Credit. This isn't a common credit, though the expenses associated with the adoption can be used to calculate your eligible credit.
Excess SS Credit. If you held multiple jobs and your wages exceeded $102,000 personally, you have paid over the threshold for social security. This amount is then used as a credit for any tax liability you may be subject to.
Retirement Savings Credit. This provides an incentive for those who are saving for retirement. The credit is limited and your income cannot exceed $26,500 (if single) or $53,000 if married filing jointly. The good news here is if you ARE eligible, your contributions to a Roth IRA are included.
First-time Home Buyer Credit. If you have just purchased a home, you may be eligible to receive up to $8,000. There are reductions if your income exceeds certain thresholds. This credit was created under the Housing & Economic Recovery Act of 2008 -- so its benefit exists only in 2008 and 2009.
Additional Child Tax Credit. This is another little bump to the child tax credit. Many people are not eligible for it, though it can benefit low-income taxpayers.
Recovery Rebate Credit. Did you have a child since you received your stimulus payment? Was your income too high in 2007 to be eligible for any stimulus payment? Or perhaps your taxable income was too low where you didn't receive the full amount you were entitled to (or for some odd reason you didn't receive what you were suppose to)? This is your chance on your 2008 return to claim what you didn't get.

04-12-2009, 08:29 AM
knowing the tax credits which relate to your business is important.

There's tons of energy efficient tax credits for houses...you get 30% back on water heaters 84% efficient and higher....also there a WI Focus on Energy rebate for $100..

this makes Tankless waterheaters 33% less...$3000 into $2000....still not worth it, but it sure helps....i have all the paper work put together in a packet and when a customer is interested i have it all prepared for them with all the forms.

i still havent sold one, but ive come closer lately.