Form 3800: How to Complete It
Most people are familiar with tax deductions, which can range from business and educational expenses to rent and office supplies. If you’re self-employed, these deductions reduce how much of your annual income is subject to taxes. However, a tax credit is even better, as it directly reduces the tax amount you owe in a given tax year.
As a business owner, you may be eligible for several tax credits. Credits are intended to promote certain business activities and generally have a time period attached to them to incentivize business owners to act sooner rather than later.
If you’re curious about how you can take advantage of business tax credits, we’ve summarized the key information you need to understand Form 3800.
Everything You Need to Know About Form 3800: General Business Credit
What is Form 3800?
The General Business Credit (Form 3800) calculates the total amount of tax credits you’re eligible to claim in a particular tax year. The IRS’s website currently lists 25 eligible business credits, although this can change from year to year. In some cases, each credit must be claimed on its own unique form (the source form).
Form 3800 determines your overall allowable credit if you claim any of the eligible business credits, as limitations may apply. It also keeps track of your carryforward and carryback tax credits from other tax years. General business credits are applied on a first-in, first-out basis. The order in which they’re used in a given tax year is as follows:
- Carryforwards to the current year, earliest first.
- General business credits earned in the current year.
- Carrybacks to the current year.
Who Must File Form 3800?
Anyone claiming general business credits must file Form 3800. In addition, it’s worth noting that the IRS requires Partnerships and S Corporations to always complete the source form, while all other filers can report the credit directly on Form 3800. Exceptions do apply, so be sure to consult the IRS’s website or a tax professional before filing.
How to Complete Form 3800:
Below is a high-level overview of how to complete Form 3800 if you plan to claim any of the general business tax credits.
Step 1: Determine Your Tax Liability (Part II, Line 7)
Since credits apply directly to the dollar amount you owe in taxes, you’ll need to know what this amount is. In addition, your general business credit can’t exceed your tax liability in a given year.
Step 2: Calculate Alternative Minimum Tax (AMT) (Part II, Line 8)
General business credits cannot be used to offset AMT. In 2018, the AMT only impacted 0.1 percent of households, according to the Tax Policy Center. In general, if your household income is more than $200,000 annually, you’ll need to calculate AMT.
Step 3: Determine Your Allowable General Business Credit (Part II, Line 38)
The following general formula can be applied to calculate your general business credit in a given tax year:
Current general business credit = credit carryforwards from previous years + current business credits + carrybacks from the next year
Your allowable credit is limited by your net income less the greater of your tentative minimum tax or 25 percent of your net regular tax liability that exceeds $25,000.
Step 4: Total Your Individual Tax Credits (Part III)
Once you calculate your allowable general business credit, you can carry over each individual tax credit. Remember, credits are applied on a first-in, first-out basis, so it’s important to claim your credits in the order outlined above (See: What is Form 3800?)
Step 5: Claim Any Carryforward or Carrybacks (Parts I and III)
Finally, if you have carryforward or carryback credits, you’ll need to determine whether you’re claiming them in the current tax year. Carryforwards and carrybacks are reported in Parts I and II of Form 3800.
How to Assemble Form 3800:
To ensure Form 3800 is properly processed, Form 3800 should be assembled in the following order:
- Page 1.
- Page 2.
- Part III with box I checked.
- All Parts III with box A checked.
- All Parts III with box B checked.
- Part III with box C checked.
- Part III with box D checked.
- Part III with box G checked.
Form 3800: Complex, But Valuable
If you’re a small business owner, general business credits can be very valuable to your bottom line, potentially saving you thousands of dollars in taxes. Still, Form 3800 can be complicated, and this guide only serves as a high-level overview of how to complete it. Since general business credits can benefit your business for years to come, it’s important to consult an accountant or other tax professional to ensure you’re receiving the highest possible benefit.
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