🎯Business Tax Credits: 3 MCQs

Responses

1. 

   Ellie Jeon 26 March 2025

   I thought business tax credits are carry back only one year and carry forward 20 years. Is it not?

   1. 

      Maroun, CPA 29 March 2025

      Hello Ellie,

      General Business Credits under IRC §39 can be carried back 1 year and carried forward up to 20 years. However, you can elect to forego the carryback. You are not required to take it.

      In Lynn’s case, the question focuses only on carryforwards, assuming no credits were used in the carryback year. So the unused credits from 2018–2022 are still available in 2023 (as long as they’re within the 20-year limit), and any unused amount from 2023 can be carried forward to 2024.

      I hope this makes sense!

2. 

   Rohit Saran 6 June 2026

   In question #4 WOTC is limited to 40% of 6000 per employee and then #5 it is applied to 40% of total eligible income (no count of employee is give). Does #5 assume that 56000 is total amount for 40% deduction?

   1. 

      Maroun, CPA 8 June 2026

      Hello Rohit,

      Yes, that is the intended assumption in question 5.

      In question 4, the problem gives you the number of employees and tells you each one earned $14,000, so you must apply the WOTC per employee. The general rule is 40% of up to $6,000 of first-year qualified wages per eligible employee if the employee worked at least 400 hours, so the maximum is generally $2,400 per employee.

      In question 5, the problem already says “$56,000 was qualified wages for the work opportunity tax credit.” That wording is effectively giving you the final qualified wage base to use. Thus, the question is assuming you can simply apply 40% to that $56,000:
      56,000 × 40% = 22,400

      Therefore, #5 assumes the $56,000 is already the total wage amount eligible for the 40% credit, and that is why the employee count is not needed.

      Hope this helps!