Once upon a time (just a few months ago … although it seems like so much longer to most of us), small business owners often rejected the idea of amending their tax returns. Some entrepreneurs viewed the amendments as an aggressive and time-consuming move. Others worried that stirring the IRS pot would bring unnecessary and unwanted attention to their operations. Whatever the reasoning — every year, money was often left on the table by the very enterprises that had earned it.
Paycheck Protection Program Offers Potential for Forgivable Capital
The recent global pandemic of COVID-19 and subsequent passing of the CARES Act has changed how executives view the tax amendment process, as businesses of every size clamor to take advantage of both existing programs and new initiatives to keep their enterprises afloat. Among the many sweeping changes implemented by the Coronavirus Aid, Relief, and Economic Securities (CARES) Act, the Paycheck Protection Program (PPP), has offered small business owners a chance to receive some potentially forgivable capital for funding payroll and other allowable costs through this time of uncertainty.
The CARES Act also adjusted regulations around net operating losses. Many businesses will find themselves in losses at the end of the year; changing the net operating losses (NOLs) rules was a positive step taken to help these companies maintain their operations. According to the most recent legislative changes, organizations can now take net operating losses generated in 2018, 2019, and 2020 back five years. This could possibly result in a refund of taxes in a year where income might have been subject to a 35 percent tax rate.
The R&D Tax Credit Could Allow Businesses to Recoup 3-4 Years of Much-Needed Cash
If you're in the process of amending your tax returns, it's critical to explore every available credit over the last several years to optimize total cash flow opportunities. For businesses that still have remaining taxes after utilizing net operating losses, the research and development tax credit can further reduce the final burden.
The payroll tax offset election allows business owners to leverage the R&D tax credit against payroll, instead of against income taxes, potentially providing an added infusion of capital to eligible organizations. The R&D tax credit can yield a maximum benefit of up to $250,000 a year of an employer's share of Social Security taxes. To qualify, the election must be made on an original filed return. Additionally, enterprises must show gross receipts for five years or fewer that equal $5 million or less in the year the credit is elected.
Urgency: To take advantage of the payroll offset in the 3rd quarter, you’ll need to file your 2019 return by June 30, 2020. Filing on July 1 or later will push the benefit to the 4th quarter. What a difference a day makes!
Partner with R&D Tax Professionals to Take Advantage of Available Tax Programs
Even if you're not amending your tax returns this year, there's still an opportunity to claim qualifying research expenditures, particularly if, like so many other businesses, you're putting off filing your taxes for as long as possible. The recently extended tax deadline from April 15 to July 15 offers a perfect opportunity for executives and financial advisors to take a deeper dive into operations to pinpoint all qualifying research and development activities in 2019.
Acena Consulting partners with financial advisors across every industry to optimize the R&D tax credit. Contact us today to hear more.