A Home Run for U.S. Small Businesses!
Congress recently enacted the “Protecting Americans from Tax Hikes (PATH) Act of 2015? (P.L. 114-113, 12/18/2015). Three significant taxpayer-friendly changes made in the tax law are Credit Permanency, Alternative Minimum Tax (AMT) and Payroll Taxes that small businesses should not overlook. If your client is a taxpayer, you will be able to reduce their tax liability quicker and increase their benefit. A startup company, not paying taxes yet, may be eligible for a reduction in their share of FICA taxes.
The R&D credit was enacted in 1981. It has expired 16 times and has been extended retroactively as part of tax extenders legislation. Naturally, this created many uncertainties and certainly did not allow for much future planning.
In the past, CPAs would wait until the credit was extended by Congress and reduce taxes on March or April 15th. Thanks to the PATH Act, the R&D tax credit is now a permanent provision of the tax law. Waiting on Congress until the 11th hour is now a thing of the past. Start Planning Now!
With permanency, U.S. Businesses can start quantifying the value before year end and reduce estimated tax payments. Account for the credits on quarterly financials and include them in budgeting.
What if your client is subject to Alternative Minimum Tax (AMT)? Historically, you could only reduce regular taxes with the R&D tax credit. Starting January 1, 2016, “Eligible Small Businesses” will be able to not only reduce their regular taxes but also offset AMT. Now, you do not have to wait until March or April 15th to determine your client’s AMT situation.
What if your client is not paying income taxes yet? The PATH Act just keeps on giving, you no longer have to wait for your client to become profitable. “Eligible Small Businesses” can now reduce the FICA employer portion of payroll taxes up to $250,000.
At last, this is a huge victory for U.S. businesses, especially for small businesses unable to utilize the credit in the past due to AMT limitations and/or profitability.
Keeping with the theme of throwing uncertainty out the window, here is an early look at the new IRS released draft forms.
FORM 8974 Qualified Small Business Payroll Tax Credit for Increasing Research Activities
FORM 6765 Credit for Increasing Research Activities
FORM 941 Employer’s Quarterly Federal Tax Return.
Contact Prime today to learn more about how we can help you take advantage of the R&D credit.