IRS Form 3800: Calculating the General Business Credit
Small business owners (and others) use Form 3800 to calculate the General Business Credit, which is actually made up of over 30 separate tax credits designed to promote certain business activities. Form 3800 pulls together all the applicable business credits into one credit, incorporates both credit carrybacks and carryforwards, applies an overall cap on the General Business Credit for the current tax year, and more. Small business owners file Form 3800 along with their personal income tax return.
Key Takeaways
- Form 3800 is used to calculate the General Business Credit, which is a combination of over 30 “component” tax credits that have their own eligibility requirements and rules.
- Form 3800 is a complex form that’s broken down into six separate parts. Some portions of the form focus on component credits for the current year, while other parts deal with credits carried over from other years.
- Sole proprietors, partners, and S corporation shareholders must file Form 3800 with their personal income tax returns.
- In addition to Form 3800, small business owners might also have to file separate forms for each component credit included in their General Business Credit.
What is the General Business Credit?
Form 3800 is used to calculate the General Business Credit, which helps small business owners cut their federal income tax bill. That’s why small business owners such as partners, S corporation shareholders, and sole proprietors ought to be familiar with the form. But before diving into the details of Form 3800, let’s take a quick look at the General Business Credit itself.
The credit is available to small business owners that engage in specific activities that promote economic growth, innovation, job creation, energy efficiency, and more. However, the General Business Credit is actually the sum of over 30 individual tax credits – let’s call them component credits – each with its own eligibility requirements, limitations, and other rules. Component credits include the Investment Credit, Work Opportunity Tax Credit, Research Tax Credit, Disabled Access Credit, and many others.
The General Business Credit is a nonrefundable credit, meaning it can only be used to reduce your tax liability to zero.
It’s also limited for any given tax year. The maximum credit allowed is generally based on your tax liability, tax credits, and certain other factors.
The good news is that any part of the General Business Credit that can’t be used that year because of the limit isn’t lost. That’s because unused credits are generally carried back one year by filing an amended return. If it’s still not fully used after the one-year carryback, you typically can carry it forward for up to 20 years until it’s completely used. (Carryback and carryforward rules may vary for certain component credits.)
As a result, your General Business Credit for any particular year can include both component credits earned during the current year and unused credits carried forward from prior years. Plus, your General Business Credit can be increased down the road if you carry back unused component credits from a later tax year.
TurboTax Tip:
When figuring the General Business Credit, use component credits in the following order: credits carried forward from previous years, credits earned during the current tax year, credits carried back to the current year. There’s also a designated order for using individual component credits (see the Form 3800 instructions).
Who must file Form 3800 (and other forms for component credits)?
Let’s now focus on Form 3800, which is used by small business owners, C corporations, and others to calculate the General Business Credit. So, if you want to claim any of the component credits that make up the General Business Credit, you have to file Form 3800.
But before you start working on Form 3800, you may have to complete and file a separate form for each component credit you’re claiming. For example, if you’re claiming the Work Opportunity Tax Credit as part of your overall General Business Credit, you might have to file Form 5884.
Sole proprietors have to complete and file the separate form for each component credit they’re claiming. The credit amounts are then carried over to Form 3800.
However, business owners claiming component credits passed-through to them from a partnership or S corporation can generally skip the separate forms and list their proportional share of the credits directly on Form 3800. The partnership or S corporation itself typically has to file the separate forms, though.
Information included on Form 3800
Much of the space on Form 3800 is devoted to reporting information about the component credits. Nevertheless, if you don’t feel comfortable completing the form on your own, don’t hesitate to consult a tax professional. Having said that, let’s go over the layout of Form 3800.
The form starts with a “yes” or “no” question about whether your business is both an “applicable corporation” for purposes of the Corporate Alternative Minimum Tax (CAMT) and an “applicable taxpayer” for purposes of the Base Erosion Anti-Abuse Tax (BEAT). These are generally large corporations, so smaller businesses will check the “no” box.
The rest of Form 3800 is broken down into six different parts.
Part I - Component credits not allowed against tentative minimum tax
This part is used to report the current-year General Business Credit for component credits that aren’t allowed against your tentative minimum tax (if applicable), which is an amount used by certain higher-income people to calculate the Alternative Minimum Tax. It includes unused credits carried forward or back to the current tax year.
Part II - General Business Credit allowed for the year
After completing the rest of the form (Parts III, IV, V and VI), the General Business Credit allowed for the current tax year is calculated in Part II. This is also where the credit limit is applied, so you must include information about your tax liability, AMT, and other tax credits. You can get information about your tax liability and credits from Form 1040 and related schedules and forms. AMT amounts are from Form 6251.
Unused credits carried forward or back to the current tax year are also reflected in Part II.
For sole proprietors, partners, and S corporation shareholders, the current year General Business Credit calculated in Part II is then reported on Schedule 3 (Form 1040) with other nonrefundable credits.
Part III - Component credits for the current year
Information related to component credits from the current tax year is broken out in Part III. For instance, you need to provide information about:
- elections to treat credits as tax payments or transfer credits to unrelated taxpayers
- credits received on a Schedule K-1 from a pass-through entity
- credits transferred to you from an unrelated taxpayer
- non-passive credits based on your level of participation in the targeted business activity
- passive activity credits allowed before applying the passive activity credit limitations
Part IV - Component credits carried over to current year
Businesses are required to report information about component credits carried forward or back to the current tax year in Part IV. The necessary information comes from tax returns, schedules, and related documents for prior tax years (carryforwards) or the next tax year (carrybacks).
You’re also required to attach a statement for each component credit carried over to the current tax year detailing, among other things:
- the tax year in which the credit originated
- the amount of the credit as reported on the original return
- the amount of the credit allowed for the original tax year
- whether the total carryforward amount was changed from the originally reported amount
Part V - Current component credits by facility and pass-through entities
This part is used to break out amounts reported in Part III for separate facilities or pass-through entities, or for credits from multiple pass-through entities.
Part VI - Additional details for credits carried over to current year
Use Part VI to break out details of component credits carried forward to the current tax year from more than one prior year or carried back from a later year. This includes any share of unused credits from multiple pass-through entities.
When do small business owners file Form 3800
If you’re a sole proprietor, partner, or S corporation shareholder, file Form 3800 with your personal income tax return (Form 1040). Typically, that’s April 15 each year, but the due date is pushed back to the next business day if April 15 falls on a weekend or holiday.
An automatic six-month tax return filing extension can also be requested, which will shift your tax deadline to October 15 (the weekend and holiday rules apply to extended deadlines, too).
Recent changes to Form 3800
Form 3800 looks a lot different now than it did a short time ago. That’s because Form 3800 was significantly revised and expanded starting with the 2023 tax year.
The revisions primarily reflect tax law changes that were part of the Inflation Reduction Act of 2022 and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act of 2022. These laws added new elections to treat certain credits as tax payments or transfer certain credits to unrelated taxpayers.
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