Maximize Your Business Tax Credits: A Smarter Way to Save

Understanding the Power of the General Business Credit (GBC)

Tax credits can be a game-changer for businesses. Unlike tax deductions, which only reduce taxable income, tax credits reduce your tax liability dollar for dollar. But there’s a catch—many of these credits fall under the General Business Credit (GBC), which has specific limits and guidelines under Section 38 of the Internal Revenue Code.

What is the GBC?

The GBC is a collection of more than 30 individual credits that reward business activities such as research, job creation, sustainability, accessibility, and employee benefits. These include:

• Research & development credit

• Work Opportunity Tax Credit

• Disabled access credit

• Employer-provided child care credit

• Renewable energy and clean vehicle credits

Each of these must be claimed separately, but when claimed together, Form 3800 is required to calculate their total effect.

Credit Limits and AMT

The IRS limits how much credit you can claim in a year. The formula takes your net income tax and subtracts the greater of your tentative AMT or 25% of any net regular tax above $25,000. While corporate AMT was mostly eliminated, individuals and some entities may still be affected.

Unused Credits: Carrybacks & Carryforwards

Can’t use all your credits this year? You can carry them back one year or forward for up to 20 years. The system follows a “first-in, first-out” method, so older credits are used first.

Lost Credits and Sec. 196 Deduction

If you ultimately lose unused credits (say, due to the business closing), Section 196 allows for a deduction to offset gains—this can be especially beneficial in a business sale.

Why It Matters

The GBC is an often underused tool that can yield significant tax savings. But the rules are complex, and strategy matters.

📞 Contact Verity CPAs at info@verity.cpa or 808.546.5026 to review your eligibility and maximize your tax credit potential.