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How can I reduce my tax exposure?

One of the best ways to decrease your tax exposure is to pay attention to tax credits as well as tax deductions.

Unlike tax deductions, which reduce your taxable income, tax credits are deducted from your tax burden. Rather than decreasing the income you owe taxes on, tax credits grant a dollar amount reduction in the tax that you owe. There are many federal tax credits available for businesses, such as the general business credit, investment credit, credit for employer-provided childcare and facilities, the Indian employment credit and more.

In some cases, you may find that your business is eligible for more tax credits than you can legally take that year. In these cases, you can do one of two things:

Apply the tax credit to previous years when you did not exceed your credit limit to receive a retroactive refund.
Carry the balance forward and apply them to the next tax year.
Many states offer tax credits to encourage economic growth and business investment. These vary from state to state, and many are offered for businesses that increase employment, use local resources, or operate in underdeveloped cities and regions. Your state’s treasury department or chamber of commerce will have comprehensive information on the state and local tax credits that are available.

Many businesses record their deductions carefully but forget to explore all the tax credits that might be available to them. To ensure that you reduce your business’s tax exposure as fully as possible, work with your accountant to make sure you are taking every applicable tax credit that can benefit your business.

Key takeaway: Securing tax credits can reduce your overall tax liability. Consider the general business credit and investment credit to start.

What is the tax treatment of charitable contributions?

Individuals who make qualified charitable contributions may deduct those contributions up to 60% of their adjusted gross income, as long as they itemize the deductions on their income taxes. Taxpayers who take the standard deduction may not deduct charitable contributions.

Corporations can deduct certain charitable contributions, though they may not deduct more than 10% of their pretax income in any given year. Excess contributions may be carried forward for up to five years. How your contributions are treated may also depend on the type of contribution you made, such as cash, property or shares of stock.

Certain charitable contributions also count as business expenses. If your business received any benefit in exchange for the donation, such as ad space or event sponsorship, the donation can be considered a business expense.

Key takeaway: Charitable contributions can be deducted, although corporations cannot deduct more than 10% of their pretax income in the same year. Some charitable contributions are also business expenses.