LUTZ BUSINESS INSIGHTS
Recent Changes to R&D Credits
JERAD KNOTT, TAX PARTNER
As part of the Protecting Americans from Tax Hikes Act (PATH) of 2015, the Research and Development Credit was made permanent retroactively to January 1, 2015 with the signing of the bill on December 18, 2015. Additionally, the PATH Act made several other changes that impact how businesses can benefit from R&D Credits.
The R&D Credit itself has been in existence since 1981. Since then it has been routinely extended each year but still allowed to expire. The PATH Act now makes the credit permanent and allows taxpayers to appropriately plan their research and development expenditures with confidence that the credit will be available.
Two additional changes were made that will have a direct impact on small and medium sized businesses beginning with January 1, 2016. The first of which is the ability for an Eligible Small Business (ESB) to use the credit to offset alternative minimum tax (AMT). An ESB is a C-Corporation, S-Corporation, Partnership or Sole Proprietorship that has average annual gross receipts for the three prior years that does not exceed $50 million. The AMT limitation had previously been a barrier for many businesses and restricted their ability to effectively utilize credits to offset income tax liabilities.
The second change allows a Qualified Small Business (QSB) to elect to utilize R&D Credits to offset the employer portion of social security taxes (FICA). A QSB is a C-Corporation, S-Corporation, Partnership, or Sole Proprietorship that has current year gross receipts of less than $5 million and has not had gross receipts for more than five years. The QSB can offset up to $250,000 per year in payroll taxes and the credit applies to the first quarter payroll tax return after the election is made.
These two changes allow businesses previously limited by the AMT and those in start-up phase when taxable income may be minimal to utilize R&D credits to help provide cash flow. That, combined with the permanency of the credit, makes now a great time to consider whether your business may qualify for the R&D Tax Credit.
Contact your tax professional today to learn more about utilizing the R&D Tax Credit in your business.
ABOUT THE AUTHOR
JERAD KNOTT + TAX SHAREHOLDER
Jerad Knott is a Tax Shareholder at Lutz with over ten years of experience in taxation. He provides tax planning, research, compliance and consulting services to privately held companies.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- BSBA, Hastings College, Hastings, NE
- MBA, University of Nebraska, Omaha, NE
- Ashland City Council, Past Councilman
- Ashland Planning Commission, Member
- ClubRed (American Red Cross), Board Member
- Project Extra Mile, Past Board Member
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