For startups and small businesses with gross receipts of less than $5 million, the IRS has allowed up to $250,000 of an R&D credit to be applied against the company’s payroll tax liability.
IRS Code Section 41 – R&D credit – was created to give startups an added benefit in the processes of conducting research in the name of innovative product creation, even if these activities are not profitable. So how do you, as a startup, use the R&D credit to offset your payroll tax liability?
Assuming you did not incur any gross receipts prior to 2012, you have two options to maximize your R&D credit for your 2016 tax year, but the election must be done prior to December 31, 2017.
How do you claim the R&D payroll tax credit? The key is filling out Form 8974, Qualified Small Business Payroll Tax R&D Credit, and attaching it to your payroll tax return on a quarterly basis.
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