The latest Tax Extenders Bill signed by the President makes the Research & Development (R&D) Tax Credit permanent. This particular credit has been extended by Congress several times over the years and many critics argued that this should be made permanent as it provides benefit to many innovative small businesses. By making this credit permanent, it eliminates the uncertainty of whether business owners will be able to rely upon the credit when it comes to tax planning.
The R&D tax credit provides cash incentives for companies conducting research activity in the U.S. Any company that designs, develops, or improves products or processes, etc. may be eligible for the credit. When people think of R&D, they associate it with scientists with white lab coats. However, many small businesses may qualify for their activities when they think they do not. Businesses in the manufacturing, software, chemistry, biology, architecture, engineering, pharmaceutical, and agriculture industries could all benefit.
There are two additional key provisions tied to this credit that will make it even more beneficial to business owners. Beginning in 2016, eligible small businesses may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax liability. Eligible small businesses for AMT purposes are those with less than $50 million in gross receipts. In order to take the credit against payroll tax, a small business is defined as those with gross receipts of less than $5 million a year.
Please contact us if you’d like to learn more about the R&D tax credit and these new provisions.
By Kelly Lynch, CPA