We’re all familiar with
the 1040 Form, April 15th, taxes owed and other basic parts of your
tax form. However, many overlook a very
useful and important technique called Tax
Credits.
A tax credit is an IRS
approved technique that directly reduces your tax bill. In other words, tax credits are amounts of
money you as a taxpayer can subtract from taxes owed to the government. Tax credits differ from tax deductions. Tax deductions indirectly reduce your tax
bill by reducing your tax base or your taxable income.
One common tax credit is
the child credit. Parents of children
under the age of 17 may qualify for a tax credit for certain amounts per
child. Importantly this reduces your tax
bill dollar for dollar. If you focus on
investments as part of your business, there are numerous investments one can
make such as Oil and Gas partnerships. These also reduce your tax bill on a dollar-for-dollar basis.
The takeaway here is to
legally use a combination of both approaches to reduce ones tax bill. This coupled with tax-free (federal and
state) income can significantly improve your tax position. You need to consult a tax professional and
financial planner for assistance in developing a sound, comprehensive tax
reduction plan.