You've heard the expression, “Take credit where credit is due.” The tax law presents you with a number of tax credits as incentives for certain business actions or merely to help you reduce your tax bill. Some credits are only for actions taken by your business; others are personal in nature. As a self-employed person, any credit to which you are entitled is an offset to your personal taxes. In other words, you figure your taxes and then apply the credits to reduce the tax bill. So in the end, it doesn't matter whether the credit is business or personal.
The reductions from tax credits can be substantial. Tax credits are more valuable than tax deductions; their value does not depend on your tax bracket.
You are in the 25% tax bracket and have a $1,000 in deductions. The deduction reduces your taxes by $250. If you'd been in the 35% bracket, you would have saved $350 in taxes by taking these deductions. In contrast, a $1,000 tax credit reduces your taxes by $1,000, regardless of whether you're in the 25%, 35%, or any other tax bracket.
Certain actions you take in business can result in a tax credit. These actions include conducting research, hiring certain workers, setting up a retirement to cover employees, and making your facilities more accessible to the handicapped. If you work alone as a consultant, likely you don't qualify for ...