The tax credit landscape is vast, potentially lucrative, and weird. Take, for example, the Biodiesel and Renewable Diesel Fuels Credit. It sounds harmless enough – earn 50 cents in tax credits for every gallon of alternative fuel produced. But paper companies which had been fueling their vehicles with a byproduct of paper pulp called “black liquor” discovered a loophole feature of the credit – mixing a little diesel with their own stuff counts as alternative fuel. International Paper Co. earned $257 million last quarter. The alternative fuel tax credit added $330 million to its bottom line.
As taxpayers, we sincerely hope you’re not this clever. And as entrepreneurs, we sincerely hope you don’t need to be. You’re innovators, not accountants! (We love accountants too. It’s just . . . you understand. Never mind.)
Tax credits can be worth more than a tax deduction because a credit directly pares down Adjusted Gross Income. We recommend that you start your search at the IRS Web site (http://www.irs.gov/businesses/small/article/0,,id=99839,00.html), which lists 29 federal tax credits available for small businesses. You can probably find more than these at the state and local level, and the list is likely to change with stimulus packages, state legislative tinkering and the political ambitions of your local county commissioners.
Qualifying for a business tax credit will often – but not always – require your company to employ people the government wishes to help, to be in a part of the country the government wishes to help, or to be in the kind of business the government wishes to help.
Here are a few examples: