Investment Credit –
What Is It
How Can You Use It?
You must have heard a lot about investment credit in recent times but may be wondering what it is, isn’t it? Well, to define investment credit, it is a tax credit which can be used by a business in order to counterbalance at least a part of capital expenditure that it makes in a project. On the brighter side, this kind of credit acts as an encouragement to the companies so that they are interested in spending money upfront for project which may not earn them any returns immediately! All of us will consider venturing into a business only when it will give us immediate profit. Unless people can see the profit, they won’t consider it worthwhile to invest in that project.
How do tax incentives work?
In order to make a proper use of the investment credit to your advantage, it is very important to know how the investment or tax credits work. Well, in case of certain industries, this incentive is offered by the government which allows the companies or individuals to deduct a certain percentage of their investment costs from their tax liability. This incentive is in addition to the normal allowances that they are offered for depreciation.
It should be noted here that investment credits are quite same as the investment allowances. These allowances help the investors or businesses to subtract a certain percentage of capital costs from their taxable income. But the difference lies in the fact that the credit offered is a subsidy for the investment done. The allowances and credits are offered to the businesses and investors so that the government can protect them for any kind of foreign competition.
Such incentives are mainly offered to support initiatives in the field of pollution control, energy conservation, solar, thermal or wind projects, or any other kind of economic development. This tax or investment credit helps in increasing the profit margin of the company and reduces the tax liability.
Use of investment credit
As stated earlier, this credit will help in increasing the profit margin. If the profit margin increases, the companies or concerned industries will be able to use the money in developing technology which will help in further growth of the industry. Moreover, profit will also have a positive impact on the standard of living of the workers and employees. Thus, it will have a positive impact on the overall economy.
But again, there are quite a large number of experts who believe that the investment credit mainly encourages and benefits the largest of investors and not the small scale investors. This is mainly because the large scale investors have the money to invest it in long term projects. Moreover, a small scale business may not be ready to take the risk of investing dollars into an investing project. Thus, these experts consider the incentive as something negative for the industries with less amount of resources or capital.
Hopefully, now you have gained a lot of knowledge about investment credit and its use. So, if you can invest in certain projects as specified by the government, then you will also be able to take advantage of this credit.