The tax deal just put forward by the Congress not only makes the R&D tax credit permanent but also includes two key changes to the R&D tax credit which will be of enormous benefit to innovative small businesses – and especially startups. Business owners need to pay close attention.
First, the legislation allows small businesses to take the R&D tax credit against their Alternative Minimum Tax (the AMT turnoff) and; second, the bill allows small businesses (for five years) to take the R&D tax credit against their payroll taxes (essentially making it refundable).
Why are these changes so big?
The AMT turnoff was put in place in 2010 for one year by Congress (thank you Senator Grassley R-IA!) and for that one year – puppies and kittens fell into each other’s arms. The upside was massive for small businesses to finally benefit from the significant tax savings provided by the R&D tax credit. Chairman of the Ways and Means Committee Brady (R-TX) has been a loud supporter of the AMT turnoff in the House and also credit to Senators Roberts (R-KS) and Schumer (D-NY) as well as Grassley for getting this commonsense change in the law back in place. The AMT turnoff (good for businesses with less than $50 million in gross receipts) opens the door for thousands of small businesses to finally take advantage of the R&D tax credit.
Start-Up. One of the oddities of the R&D tax credit is that often our nation’s most innovative, cutting-edge companies cannot benefit from the R&D tax credit because they are just opening their doors, don’t have income and aren’t paying federal income taxes (even though paying payroll taxes).
The Start-Up Act (championed by Senator Coons (D-DE) — with a good assist from Senators Schumer and Roberts – allows small businesses to take against payroll tax (up to $250,000 per year) for up to five years. A small business for the Start-Up Act provision is defined – in general — as a business with gross receipts of less than $5 million dollars a year.
This provision will go far to bring much-needed energy to the formation of new businesses as well as job creation and should excite every entrepreneur. New businesses desperately need every dollar — this provision will be a big help.
Article Source: Forbes