With the requirement to capitalize 2022 R&D expenditures, companies with net operating losses may be surprised to find themselves in a tax-paying position. This is primarily because net operating losses incurred after December 31, 2017, are subject to an 80% taxable income limitation. To minimize the cash tax impact of federal income tax payments, R&D Tax Credit studies should be considered.
The Research & Development Tax Credit is broader than many people think. Taxpayers do not need to be engaged primarily in R&D to qualify, nor do they need to be in a positive tax position (recent changes allow for “start-up” type businesses to monetize the R&D Tax Credit via a payroll tax offset).
You can benefit from the R&D Tax Credit if you answer “yes” to any of the following questions:
- Are you seeking to develop a new or improved functionality, performance, reliability or quality for a product, process, computer software, technique formula or invention?
- Do you have technical-type employees (e.g., engineers, scientists, researchers, CAD technicians, developers, etc.) creating/improving upon products or process or developing software in the United States?
- Do you incur U.S.-based contractor payments, supplies, or cloud computing expenses (AWS, Google Cloud, etc.) for creating products or developing software in the United States?
- Do you pay income taxes or were incorporated within the past five years?
If you answered “yes” or maybe to any of the questions above, it may be time to speak with Withum’s R&D Tax Credit Services Team to discuss your individual business needs and start planning as year-end approaches.
2022 Year-End Tax Planning Resources
Withum’s Year-End Tax Planning Resource Center is a one-stop-shop for annual tax planning tips for individuals and businesses, legislative and regulatory changes, COVID impacts and other tax-saving opportunities.
Disclaimer: No action should be taken without advice from a member of Withum’s Tax Services Team because tax law changes frequently, which can have a significant impact on this guide and your specific planning possibilities.