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Sunday, September 10, 2000 Google Search: section 29 Page: 3 line 7j of Part II. contents Buy/Sell Info... The Difference Between a Tax Credit and a Tax Deduction A tax credit is much more valuable than a deduction, because it is subtracted after tax is computed rather than before . A simple example will clarify the difference. Suppose that Ted's combined income for the year was $100,000. The following table compares the effects on after-tax income between a $10,000 tax credit and a $10,000 deduction. Value of a Credit Versus a Deduction ------------------------------------ CREDIT DEDUCTION --------- --------- income $100,000 $100,000 - deductions 0 $ 10,000 ---------------- --------- --------- = taxable income AFTER-TAX INCOME $ 83,740 $ 76,840 This example illustrates the magnitude of the difference between a credit and a deduction. As you can see, a credit possesses a lot of power for retaining income. With the rewrite of the tax code in 1986, Congress removed most of the significant tax credits -- Section 29 being a notable exception. However, Section 29 credits are only available through the year 2002. contents Buy/Sell Info... Tax Credits are NOT Write-Offs! They are Three Times as Valuable contents Buy/Sell Info... $100,000 $ 90,000 $ 23,160 0 ---------------- --------- --------- = final tax $ 16,260 $ 23,160 tax - credit $ 26,260 $ 10,000 Amount _________ Write-Off $ 1 Tax Credit $ 1 Tax Bracket _________ 28% All After-Tax Benefit _________ 28 cents $ 1 Calculation of the Section 29 Tax Credit Section 29 of the Internal Revenue Code specifies a credit of $3 for each barrel-of-oil equivalent (BOE) of qualified fuel produced from a nonconventional source which is attributable to the taxpayer (through his or her interest in a limited partnership, royalty trust, etc.). The credit is reduced as the average annual price of domestic oil falls within the $6 range starting at $23.50 and ending at $29.50. For example, if the average price of oil were $25.50, the credit would be $2. http://www.google.com/search?q=section+29&hl=en& safe=offPDF Image | Section 29 Tax Credits
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