Obtaining a tax credit is the next best thing to paying no taxes at all.
A tax credit is much better than a tax deduction, which only reduces your taxable income.
The tax savings you get with a deduction depends on your marginal (top) tax bracket. If you’re in the 32 percent income tax bracket, a $1,000 tax deduction will save you $320 in taxes (32 percent x $1,000 = $320).
With the tax credit, you start with the credit and then reduce, by the credit amount, the deduction that generates the credit. For example, say you have a $1,000 credit, and it reduces a deduction by $1,000. If you are in the 32 percent tax bracket, your net savings are $680 ($1,000 - $320).
In the comparison above, the tax credit is 2.125 times more valuable than a tax deduction. Therefore, if you can, go for the credit.
The tax code contains over 30 non-refundable tax credits for businesses. These are part of the general business tax credit and are claimed on IRS Form 3800, General Business Tax Credit, and on Schedule 3 of Form 1040. The general business credit is not itself a tax credit, but rather an overall limitation on the ... Log in to view full article.