Cleveland – Dec. 19, 2015 — The Day has Finally Come! After more than three decades of year-to-year uncertainty, Congress has made the R&D tax credit permanent. The credit has always been popular with politicians on both sides of the aisle, but previous attempts to make it permanent have always fallen victim to some form of bureaucratic breakdown. Today, the wait is finally over, with the passage of the Protecting Americans from Tax Hikes (PATH) Act of 2015.
This is especially great news for small businesses, who have long understood the value of the credit but have been reluctant to make it a larger part of their tax strategy due to its impermanence. The congressional deal changes all that. It also brings back the concept of an “AMT turnoff” which allows small businesses to take the R&D tax credit against their alternative minimum tax liability.
“For some time, AMT issues have served as a de-facto barrier preventing many small businesses from recouping their innovation expenses,” said TCG President Michael Krajcer. “We’ve seen firsthand how removing this barrier incentivizes these businesses to double-down on their R&D programs.”
Early-stage startups also have something to be excited about, since the new congressional deal allows them to take the R&D tax credit against their payroll taxes for up to five years. This is a huge boon for companies that are not yet revenue-positive and will do much to help entrepreneurs scale their young ventures and accelerate their hiring plans.
“We’ve always known that some of the most innovative R&D work happening in the U.S. is taking place at startups,” said Krajcer. “Unfortunately, these ventures have been locked out of the credit because they are not yet profitable, which means they are not paying income tax. Allowing these companies to claim the credit against the payroll tax will allow them to grow and hire much more aggressively. It really gets to the core of what the R&D credit was always supposed to be about – incentivizing innovation and job-growth.”
To learn more about the eligibility to claim the Federal Research and Development Tax Credit, please contact Bethany Jones-Worner at Bethany@taxcreditsgroup.com.
About Tax Credits Group:
TCG is an Ohio-based specialty tax consulting firm working to help innovative U.S. businesses of all industry sectors stay globally competitive. With headquarters in Cleveland, TCG specializes in federal and state research credit studies for small to mid-size manufacturers, software developers and financial institutions. TCG also specializes in business compliance acquisition work for large to mid-size businesses. Learn more about TCG at www.taxcreditsgroup.com.