Bicknell & Bicknell

What is the Difference between Tax Credits and Tax Deductions?

admin — Wed, 08 Apr 2009 06:05:23 +0000

Question: What is the Difference between Tax Credits and Tax Deductions?

Tax credits? Tax deductions? What is the difference? People confuse these terms frequently. Even accounting types do it. So let’s clear this up:

Answer: Tax credits? Tax deductions? What is the difference? People confuse these terms frequently. Even accounting types do it. So let’s clear this up:

Tax Credits
Tax credits are given to companies as incentives for certain kinds of activities, like spending money to improve disability access or for construction of energy-efficient buildings. Tax credits are taken off taxes (adjusted) after income is listed, in order to determine adjusted gross income. So tax credits result in a “dollar for dollar” reduction in your taxes. For every dollar taken off your adjusted gross income, that’s one dollar less that gets taxed. As a taxpayer and business owner, you should take all possible tax credits.

The list of possible Business Tax Credits includes:

Work Opportunity Tax Credit for hiring certain individuals
Disabled Access Credits, for making your business more accessible
Credits for using renewable materials in construction or hybrid vehicles in your business

Tax Deductions
A tax deduction, on the other hand, is a legitimate business expense that reduces business income, and thus reduces tax liability. Tax deductions are determined AFTER the adjusted gross income is calculated. For example, a business which sells goods will first determine a net income after cost of goods sold. Then all the business deductions (allowable expenses) are totaled and subtracted from income to get the business profit, or the taxable income.

In conclusion, tax credits and tax deductions are both of benefit to small business owners, because they reduce the taxable income of the business, but tax credits are a little better, because they are a direct “dollar for dollar” reduction.

Tax Changes in 2009 – What’s New? What Is Changed?

admin — Wed, 08 Apr 2009 05:52:58 +0000

January 2, 2009 | About.com

The IRS has made changes in some taxes and other federal agencies have revised legislation, effective January 1. Here is a reminder of some tax and law changes in 2009. At the beginning of business on Monday (or your first day of business this year), these changes are in effect:

Social Security Maximum Contribution
The new Social Security maximum contribution for 2009 is $106,800. That means you should stop making (and paying) Social Security for employees once they reach $106,801 in eligible earnings in 2009. The maximum tax contribution for each employed individual of $6,621.60 (with an equal contribution by the employer). This change does not affect Medicare, which has no maximum deduction. The rate for Social Security remains at 6.2 percent, and the Medicare rate continues at 1.45 percent, for a total deduction for each employee of 7.65 percent.

Standard Mileage Deduction
The IRS-allowed standard mileage deduction rate has changed for 2009. . Of course, you can also determine your mileage deduction by using actual costs, but the standard deduction is easier to figure. All you need to do is keep track of the number of miles you travel for business. The maximum deduction amount is 55 cents per mile for business driving.

FMLA Changes
Final regulations for the Family Medical Leave Act will go into effect January 16, with new forms that must be used for reporting purposes, and a revised FMLA notification poster for your workplace. Note that the provisions of the Family Medical Leave Act only apply if you have 50 or more employees.

Last Years Tax Return

admin — Wed, 08 Apr 2009 05:26:10 +0000

Testimonial

admin — Wed, 08 Apr 2009 04:15:51 +0000

Danny has been instrumental in allowing us to actually focus on running our business. The trust we have experienced and relationship we have developed has certainly been priceless.
~ Small Business Owner, Weatherford, TX

Testimonial

admin — Wed, 08 Apr 2009 04:15:24 +0000

We choose Bicknell & Bicknell every year for their integrity, professionalism and thorough production. We’ve depended upon them for the last four years in both our personal and business taxes and there’s no one else we would trust! Thanks, Bicknell and Bicknell!
~ Individual, Fort Worth, TX

Testimonial

admin — Wed, 08 Apr 2009 04:14:45 +0000

Last year was my first time allowing someone else to prepare my returns. Danny prepared both our personal and business returns. We received an unexpected refund of over $5000. This would not have been possible if I had done my returns. Danny is both professional and courteous and we are glad we made the switch.
~ Small Business Owner, Fort Worth, TX