Carrybacks and Carryforward of the
General Business Credit
In order to provide
some uniform rules about dollar limitations, carrybacks and carryforwards,
and other technical details, many of the federal income tax credits
available to businesses that were discussed above are lumped together
and treated as components of the "general business credit."
The
order in which the components are claimed is important. If you plan
to claim more than one of these credits for the year, you must claim
them in the prescribed order, using Form 3800, General Business
Credit. That way, if you exceed your credit dollar limit for the
year, the credits further down the list will be the ones that are
carried back or carried over to other years.
Your total general
business credit for the year can't exceed your net income tax, minus
the greater of (1) your tentative minimum
tax, or (2) 25 percent of your net regular tax liability that
is more than $25,000 ($12,500 for marrieds filing separately). Your
net income tax is your net regular tax liability plus your alternative
minimum tax and minus all nonrefundable personal credits, the foreign
tax credit, the Puerto Rico Economic Activity credit and all of the
energy-efficient vehicle credit.
 |
Example Sally's general business credit for
the year is $30,000. Her net income tax is $27,500. Her tentative
minimum tax, figured on Form 6251, is $18,487. The amount of general
business credit she can take for the year is $9,013. This is the
net income tax of $27,500 minus the larger of her tentative minimum
tax, $18,487, or 25 percent of her net regular tax liability that
is more than $25,000 (25% of $2,500 = $625). Since $18,487 is larger
than $625, she subtracts $18,487 from $27,500 to arrive at $9,013. |
|
Carrybacks and carryforwards. If the dollar
limitations on the general business credit prevent you from claiming
all of it in the year that it was earned (the "credit year"), you
can 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 year
preceding the credit year, observing your remaining dollar limit on
credits for that year. If you can't use it up in that year, move
on to the following year. This process is repeated until the credit
is used up, or until the end of the carryover period if any credit
is still left, it can be deducted in the year following the last carryover
year. Some credits have special rules under which they can't be carried
back to a year before that particular credit was enacted into law
and this is one reason why it's important to claim credits in the
correct order. Others have special carryover periods. For example,
the foreign tax credit can only be carried back to the past two years
and forward for five years.
If you have any carrybacks or
carryforwards from other credit years, figure your general business
credit for this year in the following order: (1) any carryforwards
to this year, the earliest ones first; (2) the business credits for
this year; and (3) any carrybacks to this year, the earliest ones
first. As a result of this rule, in each year the oldest credits
(and the ones closest to expiring) will always be used up first, and
the newest credits become carryovers if the business credit limit
is exceeded.
Claiming the Carryback. To claim
a carryback, you must generally file an amended return (Form 1040X, Amended
U.S. Individual Income Tax Return, or 1120X, Amended U.S. Corporation
Income Tax Return) for the tax year to which you're carrying the
credit. You can also apply for a quick refund of taxes for a prior
year 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 adjustment
of tax from a general business credit carryback.
© 2024 Wolters Kluwer. All Rights Reserved.