Tax Credits

• A tax credit can be confused with a tax deduction. A tax deduction is a reduction in the form of taxable income. For example, a person who receives a $2,000 tax deduction on an income of $10,000 would only have to pay tax on $8,000 of income. However, a person who receives a $2,000 tax credit would have his total tax burden reduced by $2,000. Therefore, tax credits can only be used by parties paying taxes.
  
  

Profits

• If a company does not make a profit, then it may not actually have any taxes that it needs to pay. In such an instance, a tax credit would be worthless to it. In the event that a company was paid a tax credit by a government in advance in the form of cash and the company did not end up making a profit, thereby meaning it did not have to pay taxes, it would likely have to return the money.
  
  

Rollover Tax Credits

• However, in some cases, tax credits can roll over to other years if they are received but not used. So, if a company receives a tax credit one year, and its tax burden is exceeded by the amount of credits, then the company might be allowed to save all or some of the credits for a following year, when its tax burden might exceed the amount of credits it receives.
  
  

Considerations

• The only way of knowing your obligation with regard to tax credits for certain is to consult the government that issued them to you. Tax credits are always issued according to a strict formula, and the issuing government should be able to inform you when and how the credits can be used. In addition, you may wish to consult a tax attorney, particularly one with expertise in your field of business.