Black Line Group is pleased to announce that The Protecting Americans from Tax Hikes (PATH) Act of 2015 was signed into law on Friday, December 18, 2015. The PATH Act of 2015 made the Research and Development Tax Credit (“R&D”) permanent for the first time in the credit’s 34 year history! The credit is permanent for costs related to qualified activity incurred after December 31, 2014.
In addition to permanently extending the research credit, the new rules significantly enhance how taxpayers will benefit from their research tax credits, utilizing the following provisions:
- Eligible Small Businesses may claim the credit against the Alternative Minimum Tax (AMT): Eligible small businesses, defined as those with average sales of less than $50 million over the prior three tax years, will be able to use the credits to offset AMT for tax years beginning after December 31, 2015.
- Some Start-Up Companies may offset Payroll Taxes with the credit:
o Beginning in tax years beginning after December 31, 2015, certain start-up companies will be allowed to utilize the research credit to offset the employer’s payroll tax (i.e., FICA) liabilities.
o These companies must meet certain criteria, such as having sales of less than $5 million per year. Further the credit may not exceed $250,000.
Every year, a large number of eligible companies across the country, particularly S Corporations, do not pursue the R&D Tax Credit because AMT prevents them from using the R&D Tax Credits that they could generate. These improvements will be extremely beneficial to businesses. Research credit filings and utilization will significantly increase as a result of this legislation.
In addition, companies that expect to start pursuing the R&D Tax Credit in 2016 for the first time should get ahead of the game and immediately start documenting/tracking their “qualified costs” so that they are in a good position one year from now when they are preparing to do their 2016 taxes.
The definition of Research and Development is much broader than most people realize. Costs that companies incur associated with developing and/or improving a product or process can potentially generate R&D Tax Credits. Manufacturers of all kinds, including those that design and develop their own products, as well as contract manufacturers and job shops can take advantage of the R&D Tax Credit.
Companies that make parts for their larger OEM customers, including metal stampers and fabricators, precision machinists, mold builders and plastic injection molders, tool and die makers, often do not know or believe that they are doing R&D, but should evaluate whether they are eligible for the credit. In addition, there can be significant R&D activities related to software development, technology and engineering companies.
For companies that have yet to take advantage of the R&D tax credit, this potentially can mean the creation of immediate and substantial amounts of cash—typically into the tens of thousands of dollars each year, the reduction of future tax liabilities and improved cash flow.
To learn more about the R&D Tax Credit and Black Line Group’s approach, email Scott Schmidt, call him (763-550-0111) or visit Black Line Group’s website where you can watch a short video explaining the R&D Tax Credit opportunity and take a short 10 question assessment.