Every year, companies claim more than 12 billion dollars in R&D tax credits; however, startup companies have largely been shut out of the program due to their lack of income tax liability. With the high levels of R&D activity occurring in most tech startups, this oversight was a huge loss for startups and hardly encouraged those that were actually researching and developing—that was, until now.
With the passing of the tax extenders bill on December 18, 2015, rendering the Research & Development Tax Credit permanent, two major changes to the legislation have significantly increased its accessibility to small businesses, especially startups. First, companies are now allowed to use their R&D tax credits against their Alternative Minimum Tax (AMT) liability, enabling small businesses (with less than $50 million in gross receipts) to utilize the credits that they were previously barred from. Second, with the inclusion of the Startup Act, small businesses that have no income tax liability can apply their R&D tax credits to their payroll tax liability for up to 5 years, a considerable tax savings that can be as much as $250,000 a year.
Startup companies, with their inherent and abundant R&D-qualifying activities, would be well advised to take advantage of this lucrative tax break. The success of a startup company relies on its innovativeness, and this emphasis on developing new and improved products positions startup companies to be ideal beneficiaries of R&D tax credits. With the savings generated from the R&D Tax Credit, startup companies can keep more of their earnings and allocate further resources to innovation and creating jobs—potentially giving them the momentum they need to lift their businesses off the ground.
The monetary value of the R&D Tax Credit is significant, and if you are a startup company or a small business owner, it is worthwhile to speak to a tax credit specialist. With the tax season already upon us, sooner is better than later to see how your company might qualify for this lucrative tax break and claim a sizable credit by next year.
Don’t miss out on this huge financial opportunity. Contact us today for more information on the R&D Tax Credit and a complimentary preliminary analysis.
