Maximize Your Ecommerce Profit by Taking Advantage of the General Business Credit
Planning for taxes is crucial for small-business owners to avoid heavy tax bills, which can severely impact a new business. The US federal government offers various tax credits and deductions that can help reduce the tax burden on your small business. In this article, we explore the general business credit (GBC) and how it can benefit ecommerce business owners. This valuable information was introduced by a detailed article about GBC and its benefits for small businesses.
Bottom Line: Read this article to better understand the General Business Credit and use it to your advantage, potentially saving your ecommerce business thousands of dollars in taxes.
Understanding the General Business Credit
The general business credit is a combination of all individual tax credits a business owner claims during the current tax year. It covers various aspects, like choosing the location for the business or deciding who to hire. The GBC is a nonrefundable tax credit, meaning it can only reduce your tax bill to zero, but will not generate a tax refund.
Top General Business Credit Components
The Internal Revenue Service (IRS) recognizes over 30 individual general business tax credits. Some of the more popular credits include:
- Investment credit – for businesses that upgrade real estate for increased energy efficiency and reduced emissions.
- Work opportunity credit – available to businesses that hire individuals from groups facing significant employment barriers, such as veterans, former prisoners, or government financial aid recipients.
- Small employer health insurance premiums credit – for small businesses providing health insurance to employees.
- Employer credit for paid family and medical leave – for businesses offering employees paid leave for family or medical issues.
- Disabled access credit – for businesses providing access to employees or customers with disabilities, such as installing a wheelchair ramp.
- Employer-provided child care facilities and services credit – for businesses offering on-site childcare to employees or partially funding off-site child care services.
- Employer credit for Social Security and Medicare taxes paid on employee tips – mainly for food and beverage service businesses paying federal taxes on server tips.
- Empowerment zone employment credit – for businesses located in an IRS empowerment zone (usually economically distressed communities) that hire employees residing in the same zone.
General Business Credit Limitations
There are limitations to the general business credit. It can not provide a tax refund for businesses that achieve a zero tax liability using the GBC. This credit has a limit that varies from one business to another. The rules governing how the GBC works are complex, but the tax code is clear: the GBC cannot be more than the excess of net income tax liability.
Filing the General Business Credit
To claim the GBC, fill out the tax forms associated with each individual credit and report the total value of these credits on Form 3800, General Business Credit. The IRS has specific eligibility requirements for businesses to claim the GBC.
Some examples of eligible businesses include:
- Non-publicly traded limited liability companies (LLCs), closely held corporations, or S corporations
- Sole proprietorships
- Any of the above businesses that do not exceed $50 million in average annual gross receipts for three tax years prior to filing
Corporations, LLCs, and sole proprietorships have a deadline of April 15 to file Form 3800 for the most recent tax year, while partnerships and S corporations have a deadline of March 15. Specific deadlines apply to the various credits that constitute the GBC.
Understanding and utilizing the general business credit can help ecommerce business owners save thousands of dollars in taxes. To make the most of the GBC and safeguard the financial stability of your business, it is recommended to consult with a tax professional.