Tax Credit

A reduction in the amount of tax owed.

QUICK ANSWER

A Tax Credit directly reduces the amount of tax a business or individual owes, unlike deductions which reduce taxable income.

In depth

Tax Credits are incentives provided by governments to encourage specific activities such as research, hiring, or investment. They directly reduce tax liability on a dollar-for-dollar basis, making them more valuable than deductions. Startups can benefit from credits like R&D tax credits, which offset costs related to product development. Some credits are refundable, meaning businesses can receive cash even if they owe no taxes. Proper documentation and eligibility are important to claim these benefits accurately.