Tax Deductions vs. Tax Credits

When looking at tax deductions vs. tax credits, it’s best to break down what it is that each has to offer to gain a clearer understanding of their pros and cons. Ultimately, each has its own set of advantages and disadvantages, but rather they can be used in conjunction with one another to create a tax network system that works for you, not against you.

Tax credits reduce the total amount of tax for which a person or company is liable. Deductions, however, reduce the amount of income that is subject to tax. A tax credit will only directly reduce your tax liability. This can be a difficult line to distinguish.

Tax credits are usually more valuable than tax deductions of the same dollar amount, but are used in slightly different ways during tax preparation. Determining your individual, family or company needs will help determine which is beneficial for the long term.

Should I Buy Tax Credits in Louisiana?

Unlike many other states, Louisiana hosts some of the most valuable and rewarding tax credits in the country. These can be applied to your existing system and offer companies in specific industries serious investment opportunities with outstanding returns. For this reason, if you are local to or do business in Louisiana, tax credits may offer the best value for your money.

If you are located elsewhere, research which tax credits are available within your area or consider relocating for tax credit purposes; many other major companies are! If this is not possible, use any tax deductions to your favor. When teamed together, these can work as a great financial investment and can work toward growing your business.

Top 10 Tax Deductions for Corporation Income and Franchise Taxes

  1. Sub-chapter S Corporation – Valued at $435 million
  2. Inventory tax/ ad valorem tax credit – Valued at $362 million
  3. Net Louisiana operating loss – Valued at $343 million
  4. Insurance company premium tax – Valued at $249 million
  5. Federal income tax deduction – Valued at $151 million
  6. Motion picture investor tax credit – Valued at $85 million
  7. Enterprise zones – Valued at $49 million
  8. Louisiana quality jobs – Valued at $31 million
  9. Ad valorem tax paid by certain telephone companies – Valued at $23 million
  10. Ad valorem tax credit for offshore vessel – Valued at $21 million

Top 10 Misc. Tax Deductions

  1. Horizontal wells – Valued at $235 million
  2. Inactive wells – Valued at $65 million
  3. Stripper oil – Valued at $39 million
  4. Incapable gas – Valued at $29 million
  5. Tertiary recovery – Valued at $20 million
  6. Incapable oil – Valued at $ 13 million
  7. Deep wells – Valued at $10 million
  8. Gas consumed in field operations – Valued at $9 million
  9. Discount of 6% for tobacco stamps – Valued at $7 million
  10. Discount for timely payment by suppliers of gasoline (petroleum) – Valued at $7 million

The Verdict is In

When debating tax deductions vs. tax credits, it’s worth looking at your personal situation to make a well-informed decision. You should also contact an accountant or tax credit specialist for more information or advice.

Figures provided by the Department of Revenue, within the Revenue Study Commission.