What is the difference between credits and deductions and what does this mean to you? The IRS is NOT your enemy! We’ve said it before and we’ll continue to say it… The IRS wants you to grow your business!! That is how they increase their tax revenue. When you grow your revenue, or hire more employees they make more tax revenue… That’s why they created tools like tax credits and tax deductions for us to use to save money on taxes. The issue is most business owners don’t utilize the tools the IRS provides because they don’t have the right people on their tax team.

Most business owners understand what deductions are and the basics on how they work. Your business has revenue and expenses, the expenses are deducted from that revenue and we won’t pay taxes on that expense. It can start to get a little tricky when dealing with how much of an expense is deductible (ie meals & entertainment 50% deduction) due to the ever changing tax code.

Credits are dollar for dollar unlike deductions which are a percentage. The main difference is you have to qualify for credits. Credits are gifts to business owners from the IRS to help them grow their business and create future revenue for the IRS. Your CPA already has their hands full preparing all of their clients tax returns. It isn’t really their job to fully understand credits and tax strategy… You hire them to prepare your taxes.

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