General Business Credit (GBC)

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General Business Credit (GBC)

What Is the General Business Credit?

The general business credit (GBC) is the total amount of individual tax credits claimed by a firm during a tax year. It is made up of carryforward credits from past years as well as total business credits for the current year. Because it is a tax credit rather than a tax deduction, the amount is deducted immediately from your tax statement. If you claim numerous business tax credits on your tax return, you must include Form 3800, General Business Credit, as well as the IRS forms for each credit. 1

Key Takeaways

  • The general business credit is the total amount of all tax credits claimed by a firm in a given tax year.
  • When submitting your income tax return, if you claim more than one business credit, you must declare the amount on Form 3800, General Business Credit.
  • Form 3800 may contain dozens of company tax credits, such as the investment credit, low-income housing credit, and credit for small employer health insurance costs.

Understanding the General Business Credit

The general business tax credit is unusual in that it does not exist as a single, distinct credit. Instead, it is a set of specialized tax credits that encourage different corporate activities such as research, oil recovery, forestry, and the establishment of a pension plan.

Fill out the proper IRS form for each tax credit and then take the total to Form 3800, General Business Credit, if you claim several business tax credits.

Before completing Form 3800, you must first claim the individual tax credits on their own tax forms, which are computed using their own set of procedures. Then, transfer the resultant combined credit to the General Business Credit Form 3800 to calculate the total permissible credit. While there are hundreds of corporate tax credits available, some of the more typical ones are as follows: 2

  • Investment credit (Form 3468)—this single credit is made up of five separate “sub” credits: rehabilitation, energy, qualifying advanced coal project, qualifying gasification project, and qualifying advanced energy project3.
  • Credit for job opportunities (Form 5884-C)
  • Credit for small-business health-care premiums (Form 8941)
  • Employer reimbursement for unpaid family and medical leave (Form 8994)
  • Tax credit for low-income homeowners (Form 8586)
  • Access to credit is restricted (Form 8826)
  • Energy efficient house credit (Form 9808)—unless the credit is extended again, do not claim the credit for properties sold or leased after 2021. 4
  • Employer-provided child care facilities and services are eligible for credit (Form 8882)
  • Credit for the expenses of establishing a small firm pension plan (Form 8881)
  • Employer Social Security and Medicare taxes paid on certain employee gratuities are deductible (Form 8846)1
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Some tax credits have time limits. Check the guidelines for each credit to ensure that it is accessible for the appropriate tax year. 2

The general business tax credit is a nonrefundable benefit that decreases your tax liability immediately. As a nonrefundable credit, however, it can only lower your tax burden to zero. Any credit balance remaining after then is immediately forfeited.

If you are unable to utilize all or part of the general business credit due to a tax obligation limit, you normally carry the unused credit forward one year. Some credits, such as oil and gas production credits, are subject to different restrictions. If you have an unused credit after carrying it back, carry it forward to each of the next 20 tax years. 5

General business credits are handled first in, first out (FIFO). As a result, the sequence in which you spend credits in each tax year is:5

  • Carryforwards to that year, beginning with the most recent;
  • Earned general business credit in that year; and
  • The carryback to that year.

General Business Credit Limitations

The general business credit, like other tax benefits, has restrictions. To determine the limit that applies to you, use the following formula:

  1. Add together your net income tax and alternative minimum tax.
  2. Subtract the larger of 1) your estimated minimum tax for the tax year or 2) 25% of your normal tax obligation that exceeds $25,000 ($12,500 for married taxpayers filing separately, but only if both qualify for the credit) from that total. 6

If one spouse has no current or unused credit, the other spouse may utilize the whole $25,000 to calculate their tax credit for the year. 7

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How Do I File the General Business Credit?

To claim the general business credit, begin by filling out the appropriate tax forms for each particular credit you are claiming. The amount of all these credits should then be carried over to Form 3800, General Business Credit.

Which Tax Credits Are Included in the General Business Credit?

Several tax credits, including the investment credit, work opportunity credit, low-income housing credit, empowerment zone employment credit, credit for small employer pension plan startup costs, credit for employer-provided childcare facilities and services, energy efficient home credit, alternative motor vehicle credit, credit for small employer health insurance premiums, and the employer credit for paid family and medical leave, can be used on the general business credit. Remember that certain credits have an expiry date. The IRS website has a comprehensive list. 5

Which Businesses Are Eligible for the General Business Credit?

An qualified small company, according to the IRS, is any of the following:

  • A non-publicly traded company
  • A partnership
  • A sole proprietorship

Furthermore, the entity’s average yearly gross earnings over the previous three tax years must not exceed $50 million. If the company is less than three years old, calculate the average yearly gross revenues based on the time the company has been in operation. 5

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