4. General Business Credit

Introduction

Your general business credit for the year consists of your carryforward of business credits from prior years plus the total of your current year business credits. In addition, your general business credit for the current year may be increased later by the carryback of business credits from later years. You subtract this credit directly from your tax.

All of the following credits are part of the general business credit. The form you use to figure each credit is shown in parentheses. Be sure you also read How To Claim the Credit later because you may also have to fill out Form 3800, General Business Credit, in certain situations.

Useful Items You may want to see:

Publication

• 954   Tax Incentives for Empowerment Zones and Other Distressed Communities

Form (and Instructions)

• 3800   General Business Credit
• 6251   Alternative Minimum Tax - Individuals

See chapter 12 for information about getting publications and forms.

Alcohol fuels credit (Form 6478).   This credit applies to alcohol you sold or used as fuel. Alcohol, for purposes of this credit, includes ethanol and methanol. It does not include alcohol produced from petroleum, natural gas, coal, or peat. Nor does it include alcohol of less than 150 proof. For more information, see Form 6478.

Credit for contributions to selected community development corporations (Form 8847).   This credit applies to certain contributions made to a selected community development corporation before June 30, 1999. For more information, see Form 8847.

Credit for employer-provided child care facilities and services.   This credit applies to the qualified expenses you paid for employee child care and qualified expenses you paid for child care resource and referral services. The credit is 25% of qualified expenses you paid for employee child care and 10% of qualified expenses you paid for child care resource and referral services. This credit is limited to $150,000 each year. For more information, see Form 8882.

Credit for small business pension startup costs.   This credit applies to pension plan startup costs. If you begin a new qualified defined benefit or defined contribution plan (including a 401(k) plan), SIMPLE plan, or simplified employee pension, you can receive a tax credit of 50% of the first $1,000 of qualified startup costs. For more information, see Publication 560,Retirement Plans for Small Business (SEP, Simple, and Qualified Plans.

Credit for employee social security and medicare taxes paid on certain employee tips (Form 8846).   The credit is generally equal to your (employer's) portion of social security and Medicare taxes paid on tips received by employees of your food and beverage establishment where tipping is customary. The credit applies regardless of whether the food is consumed on or off your business premises. However, you cannot get credit for your part of social security and Medicare taxes on those tips that are used to meet the federal minimum wage rate that applies to the employee under the Fair Labor Standards Act. For more information, see Form 8846.

Disabled access credit (Form 8826).   The disabled access credit is a nonrefundable tax credit for an eligible small business that pays or incurs expenses to provide access to persons who have disabilities. You must pay or incur the expenses to enable your business to comply with the Americans with Disabilities Act of 1990. For more information, see Form 8826.

Empowerment zone employment credit (Form 8844).   You may qualify for this credit if you have employees and are engaged in a business in an empowerment zone for which the credit is available. For more information, see Form 8844 and Publication 954.

Enhanced oil recovery credit (Form 8830).   This credit applies to your qualified enhanced oil recovery costs for the tax year. For more information, see Form 8830.

Indian employment credit (Form 8845).   This credit applies to the part of the qualified wages and health insurance costs (up to $20,000 per employee) you paid or incurred during a tax year that is more than the sum of the comparable costs you (or your predecessor) paid or incurred during calendar year 1993. The employee must be an enrolled member, or the spouse of an enrolled member, of an Indian tribe. The employee must perform substantially all of his or her services within an Indian reservation while living on or near the reservation. For more information, see Form 8845 and Publication 954.

Investment credit (Form 3468).   The investment credit is the total of the following three credits.

• Energy credit.
• Reforestation credit.
• Rehabilitation credit.

Energy credit.   This credit applies to certain expenses for solar or geothermal energy property you placed in service during the tax year. For more information, see the instructions for Form 3468.

Reforestation credit.   The reforestation credit applies to part of the expenses you incur each year to forest or reforest property you hold for growing trees for sale or use in the commercial production of timber products. For information about these expenses, see chapter 9 in Publication 535, Business Expenses.

Rehabilitation credit.   This credit applies to expenses you incur to rehabilitate certain buildings. For more information, see the instructions for Form 3468.

Low-income housing credit (Form 8586).   This credit generally applies to qualified low-income housing buildings placed in service after 1986. For more information, see Form 8586.

New York Liberty Zone business employee credit (Form 8884).   This credit provides businesses with an incentive to hire individuals from a new targeted group of employees in the Liberty Zone. For more information, see Form 8884.

Orphan drug credit (Form 8820).   The orphan drug credit applies to qualified expenses incurred in testing certain drugs, known as orphan drugs for rare diseases and conditions. For more information, see Form 8820.

Renewable electricity production credit (Form 8835).   The renewable electricity production credit is available to sellers of electricity. It is based on electricity that was sold to unrelated persons and was produced from qualified energy resources at a qualified facility during the 10-year period after the facility is placed in service. For more information, see Form 8835.

Research credit (Form 6765).   The research credit is designed to encourage businesses to increase the amounts they spend on research and experimental activities. The credit is generally 20% of the amount by which your research expenses for the year are more than your base amount. However, the credit does not apply to expenses you pay or incur after June 30, 2004. For more information, see Form 6765.

Welfare-to-work credit (Form 8861).   The welfare-to-work credit provides businesses with an incentive to hire long-term family assistance recipients. However, the credit does not apply to wages you pay or incur for qualified long-term family assistance recipients who begin work for you after December 31, 2003. For more information, see Form 8861 and Publication 954.

Work opportunity credit (Form 5884).   The work opportunity credit provides businesses with an incentive to hire individuals from targeted groups that have a particularly high unemployment rate or other special employment needs. However, the credit does not apply to wages you pay or incur for qualified targeted group members who begin work for you after December 31, 2003. For more information, see Form 5884 and Publication 954.

How To Claim the Credit

If you meet all the following conditions, use only the form shown in parentheses with each of the credits discussed above.

• You have only one current year business credit.
• You have no carryback or carryover credit(s).
• The credit (other than the low-income housing credit) is not from a passive activity. See Form 8582-CR, Passive Activity Credit Limitations, for information about passive activity credits.

If you do not meet all these conditions, you must also fill out Form 3800.

Although the empowerment zone employment credit (Form 8844) is part of the general business credit, do not report it on Form 3800.

Alternative minimum tax (AMT).   Although you may not owe AMT, you must still figure your tentative minimum tax on Form 6251 if you claim a general business credit. After you fill in Form 6251, attach it to your tax return.

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