Tax credits are a kind of government incentive which aims to reduce the taxpayer’s burden with the intention of supporting certain commercial ventures. This tax obligation is an allowable deduction which a taxpayer is given back from the tax paid within a given period stipulated by the revenue body. The most common tax credit is the one extended to expenses on Research and Development (R&D) activities undertaken by a given business. However, the research and development activities of concern should meet the minimum requirements as stipulated by the government. For instance, in the United States, The research should be innovative and experimental in nature for one to qualify for the 12% R&D tax credit. Basically, there is so much you need to know about this tax aspect and you should consider having a look at an in-depth article about this topic to get a detailed understanding. For now, we are committed to helping you discern whether the tax credit is something you should be thinking about. Here is everything you need to know:
The nature of tax credits is divided into two broad categories
Tax credit is divided into refundable and non-refundable credit with each applying in a different setting. The latter is whereby the government will not return your surplus amount but instead, it will be used to offset your pending debts. In case more money is left after paying the debts, the extra is carried forward and it can be used to offset more debts in future. In the case of the refundable tax credit, the government will return your refundable money after clearing all the debts you might be having.
Tax credit will help you have more finance at your disposal
The nature of the refundable tax credit is in such a way that you will get more money after the taxation body has subtracted all the pending tax debt you might be having with it. The remaining amount of money is sent back to you in form of cash and you can use it for your daily operations. Therefore, when you apply for the tax credit, you are likely to have more cash at a business or personal level which I bet it can help you in one way or another.
There are more than five types of tax credit which you can claim
Majority of the people are only familiar with the R&D tax credit perhaps because it is the most common and the widely advertised one by various agencies. However, there are more others which you can benefit or maybe inform other people so that they can also benefit. Some of these include the child tax credit, saver’s credit, and many others. Here is an article which can help you understand the various type of credit taxes which you can claim from the revenue body. Make sure to understand each and every type of the tax credits stipulated therein so that you can make a wise decision for your subsequent actions.
The Rules for Tax Credits are not the same
The rules governing each and every type of tax credit will differ from one type of tax credit to another as explained in this site. For instance, the time taken to refund the money for the child tax credit will be different from that of the research and development tax credit. The time required as well as the necessary documentation for launching a claim will also be different. This therefore informs you that you need to familiarize yourself with what entails each and every type of tax credit for you to initiate a viable claim.
Forgery of documents or inflation of expenses is punishable
In some case, especially when it comes to the R&D tax credit, some people tend to inflate expenses on their research and development activities with an intention of getting more refundable money. This is extremely dangerous because the revenue body will always carry out an audit after a certain period and the faking of data can easily be identified. This will attract a penalty which in some instances the company of concern can be required to pay twice the amount of the money it had been refunded to it. In United States, the due diligence by the IRS on the amount it has refunded is carried out after every three years in order to identify whether there are irregularities in the files submitted by all the people who claimed for the refund. Forgery of the documents can also attract a case in the court of law. Generally, as a bottom line, it is advisable to be as honest as possible and also provide as many supporting documents as possible for your claim.
Tax credits are not permanents
Majority of the tax credits are subject to expiry and therefore the government can discontinue or renew them at its own pleasure. Discontinuation will mostly occur if the tax credit under concern has achieved the intended purpose and or objective. It is good to remember that the tax credit is just one of the many tools used by a government to stimulate an economy and therefore once the stimulation has been achieved, the government of concern has the freedom to terminate this incentive.
It is not compulsory to personally do the claim
Few people are aware on the existence of the agencies which can help individuals with the claiming process. These agencies will do all the hustles for you and you only need to provide them with the necessary documents. However, you need also to part with a small fee which is variable depending on the agency of concern. This is actually allowable by the law and you can opt for it if you are the busy type of individual who hardly has enough time to run from one office to another.
With such information, I believe you are in a better position to make a decision on whether tax credits are something you might aspire to pursue in the future.
