Form 3800, General Business Credit: Ultimate Guide

Camino Financial02 Nov 2023
Form 3800, General Business Credit: Ultimate Guide
The tax form 3800 is crucial if you own or run a small business. This IRS tax form will help you come tax season. Your small business should take advantage of the general business credit using this IRS form. Read on to learn more about general business credit and Form 3800 and how they can be an advantage for your small business.

What Is Form 3800?

Form 3800, "General Business Credit," is an IRS form used to record tax credits for businesses.
#DidYouKnow You can use tax credits to lower a business's tax liability during tax time. Also, to increase a potential tax refund for your business. 
A business can take advantage of a tax credit often.

What Is The General Business Tax Credit?

Once a business calculates all its tax credits, this aggregate number is the General Business Tax Credit. It is the total of the individual tax credits a business can claim during a tax year. Business tax law allows you to use carryover tax credits from previous years that you might not have used because they exceeded the tax credit limit. If you plan to claim multiple business tax credits on your tax filing, then you use Form 3800 as part of your tax paperwork.

Who Is Eligible For The General Business Credit?

The IRS allows you to calculate how many tax credits you can claim in a year using Form 3800. If you plan to claim more than one of the following tax credits, you'd complete Form 3800. A partial list of qualifiers includes:
  • Investment credit (Form 3468)
  • Work opportunity credit (Form 5884)
  • Biofuel producer credit (Form 6478)
  • Disabled access credit (Form 8826)
  • Empowerment zone employment credit (Form 8844)
  • Credit for employer Social Security and Medicare taxes paid on certain employee tips (Form 8846)
  • Credit for small employer pension plan startup costs (Form 8881)
  • Employee retention credit (Form 5884-A)
  • Credit for employer-provided child care facilities and services (Form 8882)
  • Employer credit for paid family and medical leave (Form 8994)
For a complete list, see the IRS website.

Who Needs To Fill Out Form 3800?

Any business owner who is eligible for a tax credit and wants to claim the tax credit when they file their taxes should complete Form 3800. In order for a business to be eligible for a tax credit, they need to participate in an activity that would make them eligible. These fall under the umbrella of:
  • Business transactions
  • Business investments
  • Production of income for the business
Like with all claims for the IRS, you'll need to prove your eligibility for these tax credits.

Form 3800 Instructions

Form 3800 is complex to complete. Unlike many of the other IRS forms that get completed in a linear fashion, this form requires the tax filer to go back and forth from this form to others.
#CaminoTip If you plan to use Form 3800, you might want to work with a tax professional.
Let's take a closer look at how to complete Form 3800.

Calculate Your Regular Tax Liability

As a business, you cannot calculate your general business credit without first going through the steps to calculate your regular tax liability. You can calculate your regular tax liability by knowing your business income and any deductions. The IRS does offer a shortcut in calculating your regular tax liability, depending on your business structure. The options include:
  • Form 1065 for a partnership or limited liability company
  • Schedule C for a sole proprietorship
  • Form 1120 for a C corporation
  • Form 1120-S for an S corporation
Once you know this regular tax liability number, you'll record it on Part II, Line 7 of Form 3800.

Calculate Alternative Minimum Tax

The tax code has something called the alternative minimum tax (AMT). The AMT prevents high-income businesses from avoiding paying their share in taxes. You can't use the general business tax credits to lower your expected AMT. Calculating your AMT can be complex because you have to add some deductions and adjustments to get to the number. This is a smart time to have your business work with a tax professional.

Calculate Allowable General Business Tax Credit

To calculate your general business tax credit, you must already know your business's regular tax liability and alternative minimum tax. There's a formula created by the IRS that helps you to calculate this number. Generally, the rule is that the general business tax credit can't exceed your net income tax, minus the greater of a few options, which include:
  • Your tentative minimum tax
  • 25% of your net regular tax liability that is more than $25,000
You take your regular tax liability minus certain nonrefundable tax credits to get to your net regular tax.

Carry Over Business Credits

Carryover business credits from a previous year are an important part of your overall general business tax credit. You will record these using Part III of Form 3800. The IRS is particular that you apply on a first-in, first-out basis. This means you need to use your oldest carryover credits or deductions first, or you'll lose them. More on carryover credits later.

Claim Carryovers And Carrybacks On Your Tax Form

If you're unable to claim a specific tax credit in the current tax year, you can use a carryover from a previous year. Using a carryback from a previous year allows you to lower your current year's tax burden. As long as you remain eligible for them, some general business tax incentives can carry over for up to 20 years. You should know that a carryover is only good for getting your tax liability to zero. They won't give you the carryover money back as part of a return.

How Do I Add Form 3800 To My Tax Return?

The general tax credits you list on Form 3800 will get totaled, then that amount you will add to Part II, line 38 of your tax filing form. The following businesses pay their taxes through personal tax returns, even for their business. These include:
  • S Corporation
  • Sole proprietors
  • LLC members
  • Partners in partnerships
In this case, you would report the tax credit using Schedule 3 of Form 1040. You would report this on line 6. A corporation would report business tax credits using corporate tax returns using Form 1120, Schedule J, Part I, line 2b.

Other Considerations With Form 3800

There are a few other considerations when using Form 3800 for a tax credit. Let's take a closer look.

Limits On Tax Credits

The IRS tax law does limit how many tax credits you're eligible for as a business. The limits depend on your overall tax liability, which is the amount you owe in taxes for the year. When you apply your tax credits, you do it in a specific order which the IRS requires:
  • First, you use carryover credits from a previous year
  • Next, you use any general tax credits from the current year
  • Finally, you use any carryback credits
Remember, you apply these until you reach the tax credit limit allowed for the year based on your tax liability.

Tax Carryovers Of Unused Tax Credits

It's not uncommon to have more credits than you're eligible for as a business. It's good to remember that when you use Form 3800, you can carry forward unused tax credits to future years. You can also carry back tax credits to past years as needed.

How Do I Figure Carryforward Amounts For Form 3800?

First, it's important to understand carryforward amounts. The IRS tax code law allows businesses to take unused tax deductions, credits, or losses and carry forward those amounts to a future tax year. So, if you have tax credits or business losses left over from last year's taxes, this might happen because the amounts were actually greater than what's allowed in a single year. Take a look at your previous year's tax forms. The tax credits or carryover amounts not allowed should show on that tax form. You will need to report to the IRS on a required statement so you can carry forward to this current year and use the tax credit or loss as part of this year's taxes.  

FAQs

Which credits are not reported on Form 3800?

The IRS allows you to claim a tax credit for business activity. The IRS also has a list of activities that you're allowed to use when you claim tax credits. Before claiming a tax credit for business activity, you want to be sure it's IRS-approved.

Where do I get Form 3800?

You can get all IRS tax forms, including Form 3800, on the IRS website. Included with the printable form are instructions for completing the form for tax filing.

*This article is informational, not financial or tax advice.

 
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