General Business Tax Credit
The general business tax credit is the total value of all the individual credits to be applied against income on a tax return. Some of the more common credits that are claimed include: Investment Credit (Form 3468) Work Opportunity Credit (Form 5884) Low-Income Housing Tax Credit (Form 8586) Disabled Access Credit (Form 8826) Energy Efficient Home Credit (Form 8908) Credit for Employer-Provided Child Care Facilities and Services (Form 8882) Credit for Small Employer Pension Plan Startup Costs (Form 8881) Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips (Form 8846) The general business tax credit is a nonrefundable credit that directly reduces your tax bill. The General Business Credit can’t be more than the result of this formula: 1. Add your net income tax and your alternative minimum tax 2. From that amount, subtract the greater of: 3. Your tentative minimum tax for the tax year 4. 25% of the amount of your regular tax liability that exceeds $25,000 ($12,500 for married taxpayers filing separately, but only if both of them qualify for the credit) General business tax credit for the year consists of an entity's carryforward of business credits from prior years plus the total of its current year business credits. The general business tax credit is the total value of all the individual credits to be applied against income on a tax return.
What Is the General Business Tax Credit?
The general business tax credit is the total value of all the individual credits to be applied against income on a tax return. This credit can be carried forward for a number of years in most cases and can also be carried back in some cases.
Understanding the General Business Tax Credit
The general business tax credit is unique in that it is not a single, separate credit. Instead, it represents a smorgasbord of specific tax credits that promote certain business activities, such as research, oil recovery, reforestation, or starting a pension plan. The individual credits are tallied up separately on their individual forms, each of them calculated under its own set of rules. The resulting combined credit is carried over to the General Business Tax Credit Form 3800 to determine the overall allowable credit. None of the credits listed can offset the corporate alternative minimum tax. Some of the more common credits that are claimed include:
The general business tax credit is a nonrefundable credit that directly reduces your tax bill. It can only reduce a taxpayer’s liability to zero; any amount that remains from the credit is automatically forfeited by the taxpayer. General business tax credit for the year consists of an entity's carryforward of business credits from prior years plus the total of its current year business credits. Unused credit must first be carried back one year, then carried forward for up to 20 years. In regard to both the carryforward and the carryback provisions, the first in, first out (FIFO) method is applied, which results in older credits being applied first, thereby reducing the chance of credit expiration moving forward.
General Business Credit Limitations
The General Business Credit can’t be more than the result of this formula:
- Add your net income tax and your alternative minimum tax
- From that amount, subtract the greater of:
- Your tentative minimum tax for the tax year
- 25% of the amount of your regular tax liability that exceeds $25,000 ($12,500 for married taxpayers filing separately, but only if both of them qualify for the credit)
If one spouse has no current or unused credit, then the other spouse may use the full $25,000 in determining his or her credit for the tax year.
Related terms:
Additional Child Tax Credit
The Additional Child Tax Credit was the refundable part of the Child Tax Credit. The refundable credit was revamped under the Tax Cuts and Jobs Act. read more
American Opportunity Tax Credit (AOTC)
The American Opportunity Tax Credit is a credit for expenses incurred in the first four years of post-secondary education. read more
Child and Dependent Care Credit
Child and dependent care credit is a nonrefundable tax credit for unreimbursed childcare expenses paid by working taxpayers. read more
Child Tax Credit
This $2,000-per-child credit covers children under 17; $1,400 is refundable. In 2021, it's $3,000 for under 18s ($3,600 under 6) and fully refundable. read more
Dependent
A dependent is a person who entitles a taxpayer to claim dependent-related tax benefits that reduce the amount of tax that the taxpayer owes. read more
Earned-Income Credit (EIC)
The earned-income credit (EIC) is a tax credit in the U.S. that benefits certain taxpayers who earn low incomes from work in a particular tax year. read more
Educator Expense Deduction
The educator expense deduction is a tax break for teachers and other education professionals for up to $250 in out-of-pocket expenses. read more
First In, First Out (FIFO)
First-in, first-out (FIFO) is a valuation method in which the assets produced or acquired first are sold, used, or disposed of first. read more
Foreign Tax Credit
The foreign tax credit is a nonrefundable tax credit for income taxes paid to a foreign government as a result of foreign income tax withholdings. read more
Form 1045: Application for Tentative Refund
Form 1045: Application for Tentative Refund is an IRS form for claiming a quick refund. It can be filed by individuals, trusts, or estates for certain business losses. read more