Understanding the R&D Credit

Small business owners should start thinking ahead to 2017.   The R&D credit was permanently extended and includes some enhancements starting for the filing of 2016 tax returns.   The experts at Broussard Poché, LLP can help guide you through the credit.

Some of the enhancements include:

  • Offsets to alternative minimum tax
  • Offsets to the payroll tax (the new payroll tax offset allows companies to receive a benefit for their research activities regardless of whether they are profitable).

Eligible companies have:

  • Been in business for no more than 5 years (companies that did not generate gross receipts prior to 2012)
  • Less than $5 million in gross receipts in 2016 and for each subsequent year the credit is elected
  • Qualifying research activities and expenditures

Beginning with 2016 returns, small start-up firms can elect to claim up to $250,000 of qualified research expenses to offset payroll taxes instead of their income taxes.   The R & D credit will be calculated on the taxpayer’s 2016 federal income tax return.

Important Notes:

  • The portion that will be applied to offset payroll taxes will need to be identified when the 2016 return is filed in 2017
  • The payroll tax offset begins in the first calendar quarter after the taxpayer files their federal income tax return.
  • The credit can only be applied to the employer’s Social Security portion of payroll taxes.

Form 8974 (which is only available as a draft form as of 8/4/16) will be used to determine the amount that can be used to offset payroll taxes on Form 941.

The R & D credit has a lot of details that need to be included to help small business owners get a break on their payroll taxes. If you have any questions or need guidance, contact the experts at Broussard Poché, LLP.