What Is the General Business Credit?
Individual tax credits a firm claims throughout a tax year make up its general business credit (GBC). This includes carryforward credits from past years and the current year’s total business credits. Unlike a tax deduction, a tax credit reduces your tax burden. For various business tax credits, attach Form 3800, General Business Credit, and the IRS forms for each credit on your tax return.
Understand General Business Credit
Unusually, the general business tax credit is not a single credit. Instead, it’s a set of tax credits encouraging company initiatives, including research, oil recovery, reforestation, and pension plans.
Fill out the IRS form for each company tax credit and carry over the amount to Form 3800, General Company Credit.
Before completing Form 3800, claim individual tax credits on their respective tax forms, which follow different regulations. Proceed to the General Business Credit Form 3800 to calculate the total permitted credit. There are thousands of corporate tax credits, but often-claimed ones include:
- Investment credit (Form 3468)—five “sub” credits: rehabilitation, energy, qualifying advanced coal project, qualifying gasification project, and qualifying advanced energy project 3.
- Work opportunity credit (Form 5884-C)
- Credit for small business health insurance premiums (Form 8941)
- Form 8994: employer credit for paid family and medical leave
- Low-income housing tax credit (Form 8586)
- Disability access credit (Form 8826)
- Energy-efficient house credit (Form 9808)—claiming the credit for properties sold or leased after 2021 requires a credit extension.
- Credit for employer-provided child care (Form 8882).
- Form 8881: Small employer pension plan establishment credit
- Form 8846: Social Security and Medicare tax credit on employee tips
Some tax credits expire. Check each credit’s guidelines to ensure it’s accessible for the tax year.
The general business tax credit is a nonrefundable reduction in your tax bill. As a nonrefundable credit, it can only zero out your tax burden. Any credit left over is forfeited.
If the tax obligation limit prevents usage, you usually carry over unused general business credit for one year. Credit standards vary for oil and gas production credits. Carry unused credits forward to each of the 20 tax years after the credit year.
First-in-first-out (FIFO) applies to general business credits. You use credits in this order in any tax year:
- Early carryforwards to that year;
- General business credit obtained that year;
- That year’s carryover
General Business Credit (GBC) Limits
The general business credit has restrictions like other tax credits. Calculate your limit.
- Add your net income tax and alternative minimum tax.
- From the total, remove either the tentative minimum tax or 25% of your usual tax burden exceeding $25,000 ($12,500 for married taxpayers filing separately if both qualify for the credit).
Internal Revenue Code, “26 USC 38: General Business Credit(c)(1),” 146–147.
The second spouse can use the whole $25,000 to calculate their tax credit if one spouse has no credit.
General Business Credit (GBC): How to File?
Start by completing the tax paperwork for each credit you take to claim the general business credit. Transfer all these credits to Form 3800, General Business Credit.
The general business credit includes which tax credits?
On the general business credit, dozens of tax credits can be used, including investment, work opportunity, low-income housing, empowerment zone employment, small employer pension plan startup costs, employer-provided childcare facilities and services, energy-efficient homes, alternative motor vehicles, small employer health insurance premiums, and employer credit for paid family and medical leave. Remember that some credits expire. For a comprehensive list, see the IRS website.
Which businesses can get GBC?
The IRS considers the following small businesses eligible:
- A non-listed company
- A partnership
- A sole proprietorship
Over the last three tax years, the entity’s average yearly gross receipts have not exceeded $50 million. If the firm is under three years old, base typical yearly gross receipts on its lifespan.
