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The recently enacted 2010 Small Business Jobs Act (hereafter known as the "Act") includes an assortment of tax breaks and incentives for businesses.
General business credits of eligible small businesses – Changes have been made regarding the utilization of general business credits. Historically, a business’s unused general business credits could be carried back to offset taxes paid in the first previous year, and the remaining amounts had to be carried forward for 20 years to offset future tax liabilities.
Under the Act, for taxable years beginning in 2010, eligible small businesses can carry back unused general business credits for five years instead of just one. Additionally, eligible taxpayers can now offset their Alternative Minimum Tax (AMT) liability with these credits.
Previously, such taxpayers could generally only claim general business credits against their regular tax liability, and only to the extent that their regular tax liability exceeded their AMT liability. The Act now allows eligible small businesses to use all types of general business credits to offset their AMT liability in tax years beginning in 2010 and going forward.
Examples of qualifying general business credits include: research and experimentation credits; work opportunity credits; welfare to work credits; FICA tip credits; empowerment zone employment credits.
An eligible small business is generally defined as a closely-held corporation (C or S), partnership or sole proprietorship whose average annual gross receipts for the last three years did not exceed $50 million.
Consult with your tax advisors for a complete listing of eligible general business credits and to see if you specifically qualify for eligible small business status. Taxpayers in a fairly consistent AMT liability situation will definitely want to further explore their qualification for these new options.
Tax updates from PKF Texas may be found at www.pkftexas.com/taxnews.