How General Business Credits Work

How to Claim the Credits

You know the old saying "knowledge is power?" Well, in this case, knowledge is also money. Tons of credits go unclaimed every year by private citizens and businesses because they simply don't know about them. It's time to rectify that.

In general, each individual credit has its own form that must be filled out in order to claim it. If you're qualified to receive more than one credit, Form 3800 (General Business Credit) should also be completed to summarize the full set of opportunities [source: 360 Degrees of Financial Literacy]. All of the pertinent documentation is then submitted along with the business' income tax return.

Business tax credits have to be claimed for the year that the corresponding expenditures occurred. However, in some years, a business might have a lower tax liability than the amount of credits it managed to rack up. When that happens, the credits can be carried forward for up to 20 years, or carried back up to one year.

"Suppose the small business health care credits amounted to $10,000, but the business owed only $7,000 in taxes that year because of its net taxable income," explains Niwao. "The $10,000 credit could be used to lower the taxes to zero, but typically the excess $3,000 would be nonrefundable. If that is the case, the $3,000 can be used in the prior year to offset prior year taxes paid." This adjustment is accomplished by filing an amended tax return. "If there were insufficient taxes paid in the prior year, the excess $3,000 could be carried forward to subsequent years to offset future years' tax liabilities."

Keep in mind, the general business credit total you claim can't exceed a specific formulaic calculation. To discover that amount, add your alternative minimum tax (AMT) to the net regular tax. Then, subtract either 25 percent of the regular tax liability that is greater than $25,000 or the business' tentative minimum tax for the particular tax year in question. You must use whichever amount is the larger of the two for this particular math problem [source: H&R Block].