Research and Development Tax Credit Expands Benefits for Small Business

Many small businesses have celebrated the permanent extension of the research and development (R&D) tax credit by Congress, retroactive as of 1/1/15. As part of the Protecting Americans from Tax Hikes (PATH) Act of 2015, there are many important enhancements to expand how R&D credit benefits can be used by certain small businesses.

Historically, the benefits of applying for R&D tax credits have mostly been anticlimactic with little or no benefits. However, as a result of two key changes made within 2015 tax laws, this is no longer the case and businesses are finally able to benefit from this business credit.

  • Small businesses with less than $50 million in gross receipts may take the R&D credit against their Alternative Minimum Tax (AMT).
  • Small businesses may take the R&D credit against their payroll taxes (essentially making it refundable) for five years.  
    NOTE: the payroll tax offset will be available on a quarterly basis beginning in the first calendar quarter that begins after a taxpayer files their federal income tax return.  axpayers would need to file their 2016 federal income tax returns by March 30, 2017, to apply the payroll tax offset to the second quarter. As a result, the earliest taxpayers are likely to see a benefit is July 2017, when they file their quarterly payroll tax returns for the second quarter (Form 941).

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John Davis, Managing Partner, Davis & Hodgdon Associates CPAs

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