R&D Tax Incentives are available for qualified research and development activities conducted:
- Globally (over 100 countries currently offer an incentive);
- U.S. Federal Level; and
- U.S. Multi-State Levels (over 40 states currently offer an incentive)
Industries That Can Apply for the R&D Tax Credit
Federal-Level R&D Tax Credit Program
The R&D Tax Credit (RTC) program was initially added to the U.S. Internal Revenue Code (hereinafter the “Code”) in 1981 through the Economic Recovery Tax Act of 1981 as a temporary provision of the Code. The RTC program had most recently expired on December 31, 2014. A tremendous paradigm shift to the RTC program was made possible through the PATH Act which not only renewed the RTC retroactively for all of calendar year 2015 but most importantly made the RTC program permanent. In addition, the enhanced RTC program has been considerably restructured to:
- Allow eligible small businesses (i.e., $50 million or less in gross receipts) to claim the credit against the Alternative Minimum Tax (hereinafter “AMT”) for tax years beginning after December 31, 2015; and
- Allow eligible startup companies (i.e., those with less than $5 million in gross receipts and earning revenue for less than 5 years) to claim up to $250,000 of the credit against the company’s federal payroll tax for tax years beginning after December 31, 2015.
The 4 Part Test
What are Qualified Research Expenses (QREs)
Explore R&D Incentives at the Multi-State Level
The R&D Tax Credit For Start-Up Companies
IRS Notice 2017-23 was announced March 30, 2017 and gave guidance on how eligible start-up companies (i.e., those companies with less than $ 5 million in gross receipts and earning revenue for less than 5 years) can take advantage of a new option enabling them to apply part or all of their R&D Tax Credit against their federal-level payroll tax liability, instead of their income tax liability, prior to January 1st of 2016, taxpayers could only take the R&D Tax Credit against their income tax liability.
How To Apply Up to $250,000 of Your Start-Ups R&D Tax Credit Against Federal-Level Payroll Tax Liability.
- Prepare Form 6765 entitled “Credit for Increasing Research Activities” and attach this form to a timely-filed business income tax return.
- Prepare Form 8974 entitled “Qualified Small Business Payroll Tax Credit for Increasing Research Activities”. This form must be attached to its payroll tax return (e.g., Form 941 entitled “Employer’s Quarterly Federal Tax Return”).
How PM Business Can Help Start-Up Companies
No taxable income? No problem! Several states have implemented refundable or transferable R&D credits, so do not assume you cannot utilize the credits you are generating. Our team can help you combine the tax credits with tax losses and turn that package into capital through tax certificate transfer programs. There are 15 states that currently offer some form of this program.
Learn How to Optimize Your R&D Incentives
How do you make sure you have maximized your R&D tax credits without exposing your company to painful audit risk? Hire the right team to compile the right documentation and determine the right credit the FIRST time. There is no substitute for experience and that is what the PM Business Advisors offers you.
Our R&D Credit Team is led by Peter J. Scalise, a highly renowned thought leader with over twenty years of experience in identifying, gathering and documenting Federal and State R&D Tax Incentives. Peter’s background extends from servicing privately-held start-up companies to publicly-held Fortune 100 conglomerates.
How PM Business Can Help CPA Firms
Our R&D team is ready to serve you and your clients.Learn about expanding your services via trusted partners with our guide How – and Why — to Introduce Clients to Specialty Accounting and Tax Services. No need to hire talent and beef up management infrastructure to add extra value for your clients. You will always get a commitment to excellent quality, reasonableness, and timeliness. We also offer flexible engagement terms and will ALWAYS put “boots on the ground.”
States and the R&D Credit: