research credit

Research Credit Available to Some Businesses for the First Time

The Tax Cuts and Jobs Act (TCJA) didn’t change the federal tax credit for “increasing research activities,” but several TCJA provisions have an indirect impact on the credit. As a result, the research credit may be available to some businesses for the first time.

AMT reform

Previously, corporations subject to alternative minimum tax (AMT) couldn’t offset the research credit against their AMT liability, which erased the benefits of the credit (although they could carry unused research credits forward for up to 20 years and use them in non-AMT years). By eliminating corporate AMT for tax years beginning after 2017, the TCJA removed this obstacle.

Now that the corporate AMT is gone, unused research credits from prior tax years can be offset against a corporation’s regular tax liability and may even generate a refund (subject to certain restrictions). So it’s a good idea for corporations to review their research activities in recent years and amend prior returns if necessary to ensure they claim all […]

By |November 9th, 2018|business, credit, New Tax Laws, research credit|0 Comments

PATH Act Changes to the Research Credit

research

The recently enacted “Protecting Americans from Tax Hikes Act of 2015″ (i.e., the 2015 PATH Act) contains a provision making permanent the popular research credit. This credit encourages businesses to invest more in R&D by allowing a tax credit for spending on qualified research. The credit (1) is for 20% of current year qualified spending that exceeds a base amount related to gross receipts in certain earlier years and (2) can’t exceed 10% of the total spending in the current year on qualified research. Alternatively, taxpayers can irrevocably choose a simpler calculation.

The credit had lapsed for expenditures in 2015, but the legislation is also effective for those expenditures.

And importantly, the new law also makes two major changes to the credit, both favorable to small businesses. First, it provides that beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability. Also, beginning in 2016, the new law also provides that the credit can be used by certain even smaller businesses against the employer’s portion of the Social Security portion of the employer’s payroll tax (i.e., FICA) liability.

By |December 31st, 2015|research credit|0 Comments

Research Credit Extended Under New Law

On December 19th, President Obama signed into law HR 5771, the “Tax Increase Prevention Act of 2014″ (TIPA). The bill generally provides for a 1-year extension, through 2014, of over 50 expired or expiring individual, business, and energy provisions which exist year after year, although on a temporary basis.

TIPA retroactively extends the research credit for one year to apply to amounts paid or accrued before January 1, 2015.

So, because the extension of the research credit is retroactive to include amounts paid or incurred after December 31, 2013, taxpayers, such as fiscal year corporations that already filed returns for fiscal years that ended in 2014, should consider filing an amended return to claim a refund for the amount of any additional tax paid because of not claiming amounts now eligible for the tax credit.

Written by Mike Musson, CPA, Partner

By |December 30th, 2014|research credit|0 Comments