Tax Guide
In order to providesome uniform rules about dollar limitations, carrybacks and carryforwards,and other technical details, many of the federal income tax creditsavailable to businesses that were discussed above are lumped togetherand treated as components of the "general business credit."
Theorder in which the components are claimed is important. If you planto claim more than one of these credits for the year, you must claimthem in the prescribed order, using Form 3800, General BusinessCredit. That way, if you exceed your credit dollar limit for theyear, the credits further down the list will be the ones that arecarried back or carried over to other years.
Your total generalbusiness credit for the year can't exceed your net income tax, minusthe greater of (1) your tentative minimumtax, or (2) 25 percent of your net regular tax liability thatis more than $25,000 ($12,500 for marrieds filing separately). Yournet income tax is your net regular tax liability plus your alternativeminimum tax and minus all nonrefundable personal credits, the foreigntax credit, the Puerto Rico Economic Activity credit and all of theenergy-efficient vehicle credit.
 | Example Sally's general business credit forthe year is $30,000. Her net income tax is $27,500. Her tentativeminimum tax, figured on Form 6251, is $18,487. The amount of generalbusiness credit she can take for the year is $9,013. This is thenet income tax of $27,500 minus the larger of her tentative minimumtax, $18,487, or 25 percent of her net regular tax liability thatis more than $25,000 (25% of $2,500 = $625). Since $18,487 is largerthan $625, she subtracts $18,487 from $27,500 to arrive at $9,013. |
Carrybacks and carryforwards. If the dollarlimitations on the general business credit prevent you from claimingall of it in the year that it was earned (the "credit year"), youcan generally carry it back to the year preceding the credit year,and forward to the following 20 years.
To claim a carryback,first, try to carry the credit back to the earliest allowable yearpreceding the credit year, observing your remaining dollar limit oncredits for that year. If you can't use it up in that year, moveon to the following year. This process is repeated until the creditis used up, or until the end of the carryover period if any creditis still left, it can be deducted in the year following the last carryoveryear. Some credits have special rules under which they can't be carriedback to a year before that particular credit was enacted into law and this is one reason why it's important to claim credits in thecorrect order. Others have special carryover periods. For example,the foreign tax credit can only be carried back to the past two yearsand forward for five years.
If you have any carrybacks orcarryforwards from other credit years, figure your general businesscredit for this year in the following order: (1) any carryforwardsto this year, the earliest ones first; (2) the business credits forthis year; and (3) any carrybacks to this year, the earliest onesfirst. As a result of this rule, in each year the oldest credits(and the ones closest to expiring) will always be used up first, andthe newest credits become carryovers if the business credit limitis exceeded.
Claiming the Carryback. To claima carryback, you must generally file an amended return (Form 1040X, AmendedU.S. Individual Income Tax Return, or 1120X, Amended U.S. CorporationIncome Tax Return) for the tax year to which you're carrying thecredit. You can also apply for a quick refund of taxes for a prioryear by filing Form 1045, Application for Tentative Refund,or Form 1139, Corporation Application for Tentative Refund. Either of these two forms is used to claim a tentative adjustmentof tax from a general business credit carryback.
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