General Business Credit (Form 3800): How To Fill it Out and Get Tax Credits
As a business owner, you can pay less in taxes by taking advantage of credits or deductions. Tax credits lower the amount you owe. For example, if your tax bill is $15,000 but you have $5,000 in tax credits, you’ll only owe $10,000. But, there are over 30 business tax credits. Which should you claim to get the most tax savings? What forms do you need to file?
If you’re claiming more than one business tax credit, you’ll need to fill out Form 3800, also called the General Business Credit form. In this guide, we’ll show how to file Form 3800, maximize your tax savings, and find out if any of the recent tax changes apply to you.
What is Form 3800? (General Business Credit)
The government uses tax credits to incentivize certain behaviors such as using electric vehicles or retaining employees. You might be unaware that you qualify for multiple credits that will lower your total tax burden significantly.
Form 3800 consolidates all of your business tax credits, so you tally up the total value of credits for the year. As you can see, the IRS form has a lot of information on it.
Who must file Form 3800?
Businesses and corporations must file IRS Form 3800 to claim multiple business tax credits during the current tax year. In some cases, you can also use the form to carry forward tax credits to a future year or carry them back to a previous year.
In simple terms, if you exceed the IRS limit on tax credits this year, you could carry forward or apply it a future year, depending on the credit.
Which tax credits are on the General Business Credit form?
Form 3800 collects all of your tax credits in one place, so you can calculate the total value. In addition to Form 3800, you’ll need to submit individual forms for each tax credit you claim. Here are some of the tax credits that business owners claim on Form 3800:
- Investment Credit (Form 3468)
- Work Opportunity Credit (Form 5884)
- R&D Credit (Form 6765)
- Foreign Tax Credit (Form 1116)
- Small Employer Health Insurance Premiums (Form 8941)
- Paid Family and Medical Leave Credit (Form 8994)
- Employer-Provided Childcare (Form 8882)
- Retirement Plan Startup Costs (Form 8881)
- Qualified Electric Vehicle Credit (Form 8834)
- Disabled Access Credit (Form 8826)
One of the biggest challenges business owners have is figuring out which credits and deductions they can use. You can always use a business tax service like Xendoo and a tax CPA can do it for you. But, we’ve also included guidance below to help with filling out Form 3800.
How to fill out the General Business Credit (Form 3800)
Here’s a simple step-by-step guide on how to file Form 3800 properly.
1. Determine your tax liability
The first step is to determine your total tax liability. You calculate this by taking your taxable income and subtracting tax deductions. An easier way to determine tax liability is to check one of the following forms, depending on your business:
- Form 1065 – Partnership or limited liability company
- Form 1120 – C corporation
- Form 1120S – S corporation
2. Calculate your alternative minimum tax
If your income is higher than a certain level, the IRS applies alternative minimum tax (AMT) rates. The rate is 26% or 28%, depending on your income. The idea behind AMT is that everyone pays their fair share of taxes regardless of deductions. Mostly, it applies to high earners.
To calculate your alternative minimum tax, first, take your total tax liability and add back the deductions you subtracted. Then, if your income is below $539,900 in the tax year 2022, you subtract an income exemption of $75,900. Multiply the result by 28% or 26% depending on your income level. The result is called the tentative minimum tax.
Individuals that have alternative minimum tax will use IRS Form 6251. Still, calculating AMT is confusing, but an experienced tax professional can do it for you.
3. Find your general business credit limit
Your general business credit limit is the maximum amount of tax credits you can use to lower your taxes. Finding your general business credit limit involves a bit of math, but here are the basic steps:
- Calculate 25% of the portion of your net regular tax liability that exceeds $25,000.
- Compare your tentative minimum tax and the 25% of the net regular tax liability calculated in the first step. Identify the greater value.
- Subtract the greater value from step two from your net income tax to find your general business credit limit.
4. Understand carryback and carryforwards
If you’ve reached your general business credit limit, you can still claim the tax credits you have left by carrying them back or forward.
The IRS permits this to avoid penalizing small businesses that do the actions they are trying to incentivize. If this program were not in place, businesses would only be incentivized to claim credits until they reached their general credit limit, which would be counterintuitive.
You’re allowed to carry back most credits for one year. This means that if you did not reach your general business credit limit last year, you can amend the previous year’s return.
You are also allowed to carry forward tax credits. If you haven’t reached your general business credit limit this year, you can apply the unused credits from past years on this year’s return.
5. File Form 3800 with your tax return
The following businesses are usually pass-through entities, meaning you’ll file and pay personal and business taxes in one return. When you file taxes, you’ll also submit Form 3800 and other individual tax credit forms.
- S Corporation
- Sole proprietors
- LLC members
Changes to know for the 2022 tax year
The U.S. tax code changes frequently. A tax credit that you received last year might not be available this year. There may also be new credits and amounts that save you more money. Here are a few of the credit changes for the 2022 tax year:
Child tax credit
In 2021, the child tax credit amount temporarily increased to $3,600 for each child under six and $3,000 for children between six and 17. Now, it is a flat $2,000 for each child under 17 years.
Electric vehicle credit
The Inflation Reduction Act of 2022 made changes to electric vehicle credits for tax years 2022 and 2023. This year, the credit ranges from $2,500 to $7,500 depending on your EV’s battery capacity. However, if the manufacturer has already sold 200,000 units of the vehicle in question you won’t be eligible. The 200,000-unit limit will phase out in 2023. You’ll also be able to get a credit of up to $4,000 for used EVs less than $25,000.
Business taxes can be complicated, and there are many tax credits and deductions that business owners miss out on every year.
If you want to avoid the headache of filing Form 3800 and the rest of your taxes on your own, consider a business tax service that has CPAs. Putting your business tax preparation in the hands of experienced tax professionals can save you stress, and help you save as much money as possible on your taxes. See how Xendoo’s business tax preparation can help you today.