Tax Credit

A tax credit is very important concept to small business owners and individuals because a tax credit allows tax payers to deduct the amount of taxes owed to the IRS. Tax credits are available to all tax payers regardless of income. For anyone who qualifies for tax credit, a tax credit can provide significant savings.

What is the difference between a tax credit and a tax deduction?

A tax credit reduces the taxes owed to the IRS whereas a tax deduction reduces the earned income which is used to calculate the taxes owed. Most people like tax credit more than tax deductions because of this immediate reduction of taxes owed to the IRS. The IRS has set rules for tax credit qualification.

The most popular tax credits are:

• child tax credit
• earned income tax credit or EIC or EITC
• energy tax credit
• federal excise tax refund credit
• credit for the elderly or the disabled
• advanced earned income credit
• education credits
• adoption credit
• excess social security and RRTA tax withheld
• rate reduction credit
• small business tax credits

Earned income tax credit

The Earned Income Tax Credit (EITC) is also known as the Earned Income Credit (EIC). Earned income tax credit is a refundable federal income tax credit for low-income working individuals and families. To qualify for the earned income tax credit, tax payers must file a federal income tax return and also meet certain earned income tax credit requirements. This is necessary even though the tax payer did not earn enough money to be required to file a tax return.