The Research & Development Tax Credit
Helping You Get Cash Back Into Your Business!
With businesses still reeling from the effects of the Corona Virus, the biggest fear we hear is that many believe that without things returning back to “normal” very soon, more businesses are going to fail.
We hear this time and time again, but there is however an immediate solution to getting cash back into business, and that is via the Research and Development Tax Credit. The R&D tax credit has been available in the US since 1981, and was a made permanent via the PATH (Preventing Americans from Tax Hikes) Act of 2015, beginning with the 2016 tax year.
The credit can be claimed for the current tax year, and for the prior three open tax years. If you have not filed your 2019 tax returns, the credit can be explored for the 2019 tax year, as well as the 2018, 2017, and the 2016 tax years. It should be noted that the 2016 tax year will be expiring depending on when the 2016 tax return was filed. As such, now would be a very good time to discuss claiming the R&D tax credit with your most trusted advisor, your CPA.
In deciding whether or not you should claim the R&D tax credit, the CARES Act now allows for losses to be carried back five years to generate refunds, and has removed the taxable income limitation allowing NOLs to fully offset income in current taxable years.
Start-up businesses, those with less than $5M is sales revenue per year, for no more than the last five years, who are usually in an NOL situation, can now offset payroll taxes, specifically the employer’s Social Security portion of the FICA taxes, with the R&D tax credit.
Claiming the R&D tax credit should be explored as a means to get cash back into the business, and if you do not think you qualify for the tax credit, think again. During the early years of the credit, a business had to have activities that were “earth shattering”, but that is no longer the case. If a company is developing or improving new products, process, techniques, inventions, formulation, or software, chances are they can qualify for the credit.
This means that most any industry can qualify for the R&D tax credit. If you have doubts that you qualify for the credit, then a discussion with an R&D expert can be time well spent.
The Research & Development Tax Credit is a dollar for dollar savings against tax, and now may be the perfect time to claim the R&D tax credit. Businesses should be exploring all ways to get cash back into the business, and the R&D tax credit, coupled with the CARES Act loss carry back provision, may now be one of the powerful incentives available to businesses today. If you are not claiming the tax credit, you might just be leaving money on the table!
Jill Mazur, CPA
Engineered Tax Services
949-350-6369 / [email protected]