R&D Tax Credit Offers the Biggest Opportunity for Small Businesses and Start-ups

As part of the Protecting Americans from Tax Hikes (PATH) Act of 2015, the Research and Development (R&D) Tax Credit has now been made permanent and has been enhanced to provide additional benefit to small businesses. With this act signed into law, it eliminates the yearly uncertainty of the extension of this credit. This pro-growth tax initiative can be relied upon going forward and now provides real cash tax savings to small businesses that may not pay income tax.

What does this mean?

With the changes imposed by the PATH Act, qualified small businesses with gross receipts of $50 million or less can offset the R&D credit against their Alternative Minimum Tax (AMT) beginning in 2016. In addition, certain small and start-up businesses can apply the R&D credit against their payroll taxes.

For small businesses, in order to qualify to offset the R&D credit against payroll taxes, you must meet certain qualifications:

• You must have less than $5 million in gross receipts; and
• You can’t have had any revenue prior to 2011 (for the 2016 tax year)

The R&D tax credit is available to offset the employer’s portion of payroll taxes beginning with credits claimed on or carried forward to the 2016 tax year. The election is made on the timely-filed (with extension) 2016 tax return to apply up to $250,000 of R&D credits to payroll tax liability.

This means that business owners and managers can now plan for investments in new products for 2016 and beyond. And for small and start-up businesses, the R&D credit will act as an additional source of reliable funds year after year that will not cut into the business owner’s equity.

What can Weaver do to help?

For more information on this topic or to learn how Weaver’s tax professionals can help, contact your Weaver tax partner or call us at 800-332-7952.