The Protecting Americans from Tax Hikes (PATH) Act of 2015 makes the Research and Development Tax Credit (R&D) permanent for costs related to qualified activity incurred after December 31, 2014.  No more waiting at year-end to see if the credit will be extended! Hooray!

 

For small and medium sized businesses, the new rules significantly enhance how taxpayers may benefit from their R&D tax credits:

 

Eligible small businesses may claim the credit against the Alternative Minimum Tax (AMT).
Eligible Small Businesses, defined as those with average sales of less than $50 million over the prior three tax years, will be able to use the credits to offset AMT for tax years beginning after December 31, 2015.

 

Some start-up companies may offset payroll taxes with the R&D credit.
Beginning in tax years beginning after December 31, 2015, certain start-up companies will be allowed to utilize the research credit to offset the employer’s payroll tax (i.e. FICA) liabilities. These companies must meet certain criteria, such as having annual sales of less than $5 million. Further, the credit may not exceed $250,000 and may not be claimed for more than five years.

 

A potential boost to your cash flow during start up or pursuit of innovation.

The above enhanced R&D credit benefits are significant since an obstacle in utilizing the R&D credits often times is the effect of the AMT or the lack of an income tax being incurred due to start-up company losses.  The lifting of these restrictions in certain eligible small business settings is significant in terms of immediate cash flow benefits from the R&D credits.

 

Does this apply for your business? Now may be the time to find out. 

The combination of permanency of the R&D credit and enhanced immediate cash flow benefits from the credit makes it more important than ever for small and medium sized businesses to review their R&D activity.  DS+B partners with several R&D credit specialists to help determine if the credit might apply to your business. We can facilitate a R&D credit review to determine if a Research & Development Tax Credit Study is warranted, then guide you through the selection process. For more information, contact Paul Simons to discuss your operations.