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Glossary
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Tax credit

What is a tax credit?

A tax credit is a dollar-for-dollar reduction in the amount of income tax owed. Unlike deductions, which reduce the amount of income subject to tax, tax credits reduce your tax bill directly.

In more detail, tax credits come in many forms and are often provided as incentives for certain behaviors, such as investing in renewable energy, hiring workers from certain groups, or conducting research and development. As a founder, it's beneficial to understand the availability of tax credits related to your business activities, as they can significantly reduce your company's tax liability.

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