Do you design, develop or improve products, processes, techniques, formulas, inventions or soft ware? If your company has invested time, money and resources toward the advancement and improvement of its products and processes, then you may qualify for the R&D Tax Credit.
The intent of the Sec. 41 research and development (R&D) credit is to give companies incentive to invest in innovation within the United States. The R&D credit is available to companies in a variety of industries that develop new or improved products or processes. Certain wages, supplies, and contract research costs associated with qualifying R&D projects and activities, referred to as qualified research expenditures (QREs), form the basis of the R&D credit. Despite having qualifying R&D activities and corresponding QREs, small businesses have often been limited in their ability to claim the R&D credit in the current tax year due to net operating losses or alternative minimum tax (AMT) positions.
Starting in 2016 the new rules allow businesses with less than $50 million in gross receipts to offset the R&D credit against AMT liability; and allow certain small businesses with less than $5 million in gross receipts to offset the R&D credit against payroll taxes. These changes positively affect businesses of all sizes that invest in R&D projects and activities in the United States. However, the new rules that provide for the offset against AMT and payroll taxes are the most significant for small businesses that would otherwise be limited in taking immediate advantage of the R&D credit.
Qualifying for the R&D credit is easier than a lot of business owners think. Some initial questions should provide the information necessary to determine if your company is eligible.
Andrew J. Jordan, CPA, MSF, CGMA
The information provided is not intended as a substitute for legal or other professional services. Legal or other expert assistance should be sought before making any decision that may affect your situation.