Posted by Jeffrey M. Feingold on 05.18.17
With so many tax proposals swirling around in Washington, the business world is in a wait-and-see mode to see how it all falls out. While tax reform could very well do away with many of the tax credits businesses utilize, there is nothing in these proposals that would negatively impact the valuable research and development (R&D) tax credit.
In fact, the only impact from current Trump administration proposals is beneficial to businesses with eligible R&D credit activities. More specifically, a lower corporate tax rate would not affect the calculation of an R&D credit, but it would, in most cases, increase the “net credit” benefit.
Let’s look at an example:
Take, for instance, if ABC Company has a $100,000 gross R&D credit claimed and added back to taxable income. Under a current assumption, if we assume that ABC Company is in a 35 percent tax bracket then the net credit benefit is worth $65,000. Under a Trump administration proposal, if ABC Company’s tax rate drops to 15% then the net credit benefit is worth $85,000 based on the equivalent amount of gross credits calculated and claimed.
Less than 33% of companies that qualify for the federal R&D tax credit actually utilize it.
Ever since Congress enacted the Protecting Americans from Tax Hikes (PATH) Act of 2015, the R&D tax credit door has opened to businesses of all sizes and from more industries than ever before. R&D is now a permanent part of the tax code, and there’s been no discussion about any modifications to the law that would affect these valuable credits.
Tax Point Advisors encourages all business owners to examine activities you are already engaged in to determine eligibility for R&D tax credits. Please read our e-book: The Business Owner's Guide to R&D Tax Credits for a closer look at qualifying activities and industries, the four-part qualification test, how to work with an R&D tax expert, and much more.
Tax Point Advisors will continue to monitor political and legislative changes and keep you updated through our blogs and newsletters.
Find Out if Your Activities Qualify
The R&D tax credit can be a lucrative incentive for businesses. And given the new permanent nature of the federal tax credit, now is the time to consider whether activities performed by your company qualify for major cash-saving federal and state tax credit opportunities.
Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits.
You may also contact us at (800) 260-4138, or please leave us a message below.