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Claiming Federal Income Tax Credits

Once you've decided that one or more of the available tax credits apply to you, how do you go about claiming it? The easiest answer is, you don't you leave it up to your tax pro, because the rules for most credits are too complicated for the average small business owner to handle.

However, we're including the basic concepts here, so that you can ask intelligent questions of your accountant or lawyer, and see that he or she is earning the fees that you pay. You can also use this information as a starting point if you are a stouthearted do-it-yourselfer.

There are a number of steps you must take in the process of computing and claiming your tax credits:

Dollar limitations on credits. In most cases, the limit on the credits you can claim for the year is computed as follows: take your regular tax liability, subtract your tentative minimum tax liability, and the result is the dollar limit on credits you can claim for the year. The credits are subtracted in a prescribed order, and some, including components of the general business credit, as well as the general business credit itself, have additional limits that must be observed.

Forms to use. Most of the credits must be computed on their own special IRS forms. In addition, if you are claiming more than one of the components of the general business credits, if you have a carryback or carryover, or a credit from a passive activity, you will also need Form 3800, General Business Credit, to compute any limitations on the combined credit components.


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