If your company meets certain qualifying criteria, for tax years beginning January 1, 2016, there is an R&D research credit of up to $250,000 that can be used to offset alternative minimum tax (AMT) and/or payroll tax.
- C and S Privately held corporations, partnerships or sole proprietorships
- Three year average annual gross receipts under $50 million (for AMT)
- Must have less than $5 million gross receipts, and no history of gross receipts beyond the 5 preceding tax years - including predecessor companies (for FICA)
- Qualifying research activities and expenditures
- New expanded benefits provide start-ups with up to $250,000 of cash per year for 5 years even if in losses.
Why is it Important?
“Qualified” small businesses can use R&D credits to offset the FICA employer portion of payroll tax, up to $250,000 for each eligible year. For a company with limited cash resources, this presents a possible $1M + opportunity.
The Protecting Americans from Tax Hikes (PATH) of 2015 expanded the R & D tax benefit for many small to mid-sized companies. Prior to PATH, the credit was limited to offset regular income tax. However now, if an “eligible” small business has less than $50 million in average gross receipts for the prior three years, they can also use the credit to offset alternative minimum tax, a tax that was originally imposed to ensure corporations pay at least some tax on their income. “Qualified” small businesses, defined as having less than $5 million in gross receipts for no longer than 5 years, can use those R&D credits to offset the FICA employer portion of payroll tax, up to $250,000 for each eligible year. For a company with limited cash resources, this presents a possible $1M + opportunity.
R & D Tax Credit at a Glance
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