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Business Tax Credits Questions

What are business tax credits?

Business tax credits are tax credits that are given to a business as an incentive to invest in properties or to operate in certain areas. The business tax credits may be offered towards income or property taxes. These credits are generally nonrefundable due to the fact they may exceed the taxes otherwise due. The types of business credits that are generally available vary by jurisdiction. For more information about business credits read below where Experts have answered these questions.

If a person has general business tax credits and wanted to sell them, how much could they get out of them?

When it comes to general business credits, they are generally nontransferable. There may be some exceptions under certain circumstances; they may be transferred, with limitations, from one party to another through various means. Theses means may be through the sale of property that is generating the credit. In most cases, the property being sold to a business or company, then there may be business credits that the buyer can claim.

When a person is filling out Internal Revenue Service (IRS) Form 3800, the person can deduct unused business credits, would they place this on Schedule A or on Form 1040 as an Adjustment to Gross Income?

The person would need to look into the IRS Codes that are listed below when filling out their tax return.

According to IRS Code Section 38(c) (1); “The amount of the general business credit may not exceed the taxpayer's net income tax, less the greater of: (1) the taxpayer's tentative minimum tax, or (2) 25 percent of the taxpayer's net regular tax liability over $25,000.”

According to IRS Code Section 39(a) (2); “The entire amount of the unused credit is carried back; the amount carried forward to each of the following 20 years depends on the amount that is not used in each of those years.”

According to IRS Code Section 196(a), 196(b), and 196(c); "Any qualified general business credits that remain unused after the end of the 20-year carry forward period (or when a taxpayer dies or goes out of business) may be taken as a deduction in the first tax year after the end of the 20-year carry forward period (or in the year of the taxpayer's death or cessation of business).”

Can a person use their $30,000 in unused low income housing tax credits before the 20 year mark or would the person loose them entirely?

Generally the business credits that are used are able to be carried forward for 20 years following the year they were available. The following links will explain the qualified credits and how to fill out the form, http://www.irs.gov/pub/irs-pdf/i3800.pdf, http://vlex.com/vid/deduction-certain-unused-business-credits-19210029, http://recovery.mt.gov/content/Commerce/TCEP/docs/Sec42.

If a person owns a small Limited Liability Company (LLC) with only one member, is there any type of business credits that the person can claim for business expenses?

In most cases when the IRS looks at a single member LLC, they consider it to be a disregarding entity. This means that the owner would report all of their business and expenses for the business as a solo proprietorship when the person is filling out the schedule C. The person would need to look at their business expenses, because these expenses may be able to be deducted. Since the business income would be included in the individual income, the person’s business income or loss would affect the person’s overall tax liability. The person may also be able to claim the following credits; earned income tax credit, credit for estimate tax payments, credit for excess Social Security being held out, tax withheld from salary or wages, first time homebuyer, alternative minimum tax, and there may be a small return that the person can get if they provide health insurance to the employees.

When a person owns a business, then they may be able to get the business tax credit. When the owner is filling out their taxes they may run I to questions about what qualifies for the business credit and what rules they need to go by when applying for the business credits. When these questions arise, then the business owner would need to consult an Expert.
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