Sometime a PATH is better than a road when traveling to your destination.In this case, the "Protecting Americans from Tax Hikes" Act of 2015 aka PATH was the right journey for the R&D Tax Credit and many other federal tax incentives.
Today, Congress passed the “Protect Americans from Tax Hikes” Act of 2015. This agreement makes permanent a number of tax incentives that have long been a part of the annual tax extender package that expires each year (or every two years) and then gets extended at the eleventh hour.
Joining the research tax credit as now permanent, other incentives such as a 100% exclusion on small business stock, the earned income credit, American opportunity credit and child care credit (all increased),the increased Section 179 deduction and many others.
For the R&D tax credit, significant changes will make this credit a home run for small businesses. Let’s look at these impacts:
Small Business benefits
For small businesses, the research tax credit can now be used against Alternative Minimum Tax (AMT). This single change will mean the ability of the R&D tax credit to positively impact small businesses (that employ millions of Americans) just went up dramatically. In so many cases, the federal R&D tax credit can be generated but goes unused because the business owner pay AMT. This means the credit is carried forward until the business owner no longer pays AMT but regular tax. Even when this is the case, once the research tax credit reduces the regular tax, it would only lower taxes down the the calculated federal AMT. For the small business owner, this change now means they will be able to reduce their federal tax liability whether they are paying regular tax or AMT.
In addition, a small business owner may elect to use some or all of their R&D tax credit against payroll taxes up to a maximum of $250,000. What does this mean for the small business owner that is currently in a loss situation and doesn't pay federal income tax? They can now use the R&D tax credit to reduce their payroll taxes and overall operating expenses.
There will be much more information to follow but this is an exciting day for small business owners and a nice early Christmas present.
At Acena Consulting, we recognize that you, the small business owner, have a lot more on your plate than worrying about a tax credit. Our role is to bring strong tax technical knowledge, ability to build efficient processes, answer the questions you may not know that need to be asked and take this concern off your list so you can focus on your core business. Let us help you lower your taxes, increase cash flow and document your activities in a way that will secure your R&D tax credit.
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