Due to predicted weather conditions, our office will have shortened hours on Thursday, 12/22, from 10 am to 4pm. Our Office will also be closed from Dec 23 to Dec 26 in observance of Christmas. We will return to regular business hours on Tuesday, Dec 27. Have a happy and safe holiday weekend.
The research and development tax credit has been a great tax savings incentive to companies looking to increase their internal research and development activities. When President Obama signed the Protecting Americans from Tax Hikes (PATH) Act on December 18, 2015, the research and development (R&D) credit was finally made permanent (retroactively as of January 1, 2015). In addition, the credit now contains two new options for utilization that did not previously exist which broadens the impact of the credit for many small to mid-sized businesses.
Previously, the R&D tax credit could only be used to offset regular tax; this rule limited many small to mid-sized businesses in their ability to use the credit if they were subject to the alternative minimum tax (AMT). Beginning in 2016, businesses with less than $50 million in gross receipts will be free to use the credit to offset AMT.
In addition, certain start-up businesses (with less than $5 million in gross receipts) that may not have an income tax liability will be able to offset payroll taxes with the credit to the tune of $250,000. No longer will they have to wait until they generate taxable income to take advantage of the credit savings.
Businesses should be aware of the four part test that research activities must pass before the corresponding expenditures related to those activities will qualify for the tax credit. The four part test is as follows:
If you are planning on claiming an R&D tax credit on your business’ next tax return, please consult your tax advisor. Although the benefits of the R&D credit make it attractive, now more than ever, you will want to make certain that you meet the requirements because it has become one of the most heavily audited tax credits by the IRS in recent years.