PATH Expands R&D Credit Eligibility for Startups and Small Businesses

PATH Expands R&D Credit Eligibility for Startups and Small Businesses

Posted by Jeffrey M. Feingold on 06.08.16

When Congress made federal research and development (R&D) tax credits permanent by enacting the Protecting Americans from Tax Hikes (PATH) Act of 2015, it included a new provision that benefits startups and small businesses. The enactment of PATH enables startups, as well as some established small businesses that develop and test new products, to qualify for the R&D tax credit. Before, a company had to generate a profit and pay income taxes before it could claim the credit. PATH has a particular impact on high-tech startups because most of them will qualify. Now, businesses with less than $5 million in revenue a year can take the tax credit against their payroll taxes, assuming they have employees engaged in R&D not more than five years. The maximum benefit an eligible company is allowed to claim against payroll taxes each year under the new law is $250,000. The new payroll tax offset is limited to companies that have:

  • Gross receipts for five years or less; a company is ineligible if it generates 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

Qualified small businesses will be able to elect to use part of the current year credit, all of the current year credit or even a carry-forward credit against payroll tax.

Helping Small Businesses Determine Eligibility

R&D tax credits can offer a significant financial advantage to businesses, allowing both reduced tax liability and cash back for reinvestment or other needs. Yet many small businesses miss out due to uncertainty about qualification and concern about the complexity of necessary documentation. With the specialized knowledge and advanced experience of the professionals at Tax Point Advisors, small businesses can receive the same care and attention as Fortune 500 companies. And with the new provisions for startups, companies of all sizes qualify for the credit and can benefit significantly. Keep in mind that 70% of states now offer a R&D tax credit, though eligibility requirements vary from state to state.

Find Out if Your Activities Qualify

The R&D tax credit can be a lucrative incentive for innovative businesses. Given the new permanent nature of the tax credit, now is the time to consider whether activities performed by your company qualify for major cash-saving tax credit opportunities.

Request a free assessment to determine qualifying R&D tax credit eligibility.

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. For more information, please contact (800) 260-4138 or please leave us a message below.


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