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Congress created the research
and development tax credit
in 1981 as a temporary tax
incentive for companies who
were conducting research and
developing new products and
services. Referred to as the
R&D tax credit, this temporary
tax credit was allowed to expire
16 times over the years before
being made a permanent tax
credit effective as of January 1st
2015. This was definitely good
news and it was made even
sweeter when Congress made
some additional improvements
to the credit that opened the
door for smaller companies.
The R&D tax credit is a dollar-
for-dollar reduction of tax
liability and, previously was only
allowed to be used to offset
regular income tax. Now, as
of January 1st, 2016, eligible
small businesses can also use
the credit to offset alternative
minimum tax. For the record, an
eligible small business is defined
as a business with less than $50
million in average gross receipts
for the 3 preceding years.
Congress also decided that
if you’re a qualified small
business, you can use the R&D
credit to offset your employer
FICA match for up to $250,000 a
year. A qualified small business
is defined as having less than $5
million in annual gross receipts
and having gross receipts for
no more than 5 years. This
means that newer businesses
can potentially benefit from
the credit before generating
taxable profits.
You might be wondering if
any of your business activities
qualify for the credit. Typically
a company that is engaged
in activities that create or
improve a product, technique,
process, invention or formula
is a possible candidate for the
credit. Are you conducting
research, creating software
applications, modifying existing
processes or systems or testing
outnewmaterialsandconcepts?
Maybe you’re designing and
testing prototypes or product
alternatives,
creating
new
designs or developing new
manufacturing processes. If
you’re engaged in any of these
types of activities, you just
might qualify.
Expenses thatqualify for theR&D
tax credit include wages paid to
Are You Eligible for the
Research and Development Credit?
It’s Not Just For The Big Corporations With Science Labs
By Tina Moe, CPA
SOAR TO SUCCESS
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J
anuary
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Core Business Strategies