Corporate Income Tax Practice Exam 2025 - Free Corporate Tax Practice Questions and Study Guide

Tax credits are specific amounts that a corporation can subtract directly from its total tax liability. This means that for each dollar of tax credit, the company reduces its tax owed by the same amount, resulting in a dollar-for-dollar reduction in the taxes due.

For instance, if a corporation has a tax liability of $100,000 and qualifies for a tax credit of $10,000, the corporation can reduce its tax payment to $90,000. This makes tax credits particularly valuable for businesses, as they provide a direct financial benefit compared to other forms of tax relief, such as deductions or deductions based on percentages.

The other options provide different concepts. Incentives for hiring new employees can match certain tax credits but don't represent a direct reduction of the overall tax liability. Additional taxes do not reduce liability and are instead obligations. Lastly, a percentage of income that can be deducted refers to tax deductions rather than credits, which do not directly reduce tax owed but instead lower taxable income, hence reducing the tax liability indirectly based on the tax rate.