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Research & Development Tax Credit Expansion for New and Small Businesses

Have you considered whether you or your business is eligible for the new R&D Tax Credit? Based on a recent bill proposal, opportunities continue to grow for new businesses and small sized taxpayers alike. If passed, the bill will provide additional cash savings for even the smallest and newest companies that perform qualified R&D activities, regardless of the companies’ tax position. Taking advantage of the potential new R&D Tax Credit could significantly increase a company’s cash-flow, which is paramount for any new business.

The bill proposal aims to double the refundable research credit and increase the Alternative Simplified Credit (ASC) rate for new and small businesses. Senators Hassan (D-NH) and Tillis (R-NC) have introduced the bill aimed at improving the R&D credit benefits for these start-up and small businesses. Historically, these types of businesses could not immediately utilize the R&D credit as they were not generating regular tax for the R&D credit to offset.

The PATH Act of 2015 added new sections to the R&D IRC allowing for qualified small businesses to apply for the credit against the employer’s payroll tax liability (up to $250,000 annually).  The new bill would double the refundable R&D credit amount for new and small businesses by increasing the refund cap from $250,000 to $500,000.  In addition, the bill would expand refundability of the credit to cover all payroll taxes and increase the eligibility cap from $5m to $10m in receipts.  Finally, the bill would increase the ASC rate from 14% to 20% for new and small businesses that qualify for the credit.

If enacted, the bill would increase both the availability of the payroll offset option as well as the ability to generate cash tax savings for eligible taxpayers.  Further, the bill would create what amounts to a new credit methodology by modifying the ASC solely for those taxpayers that meet the eligible requirements.  These eligible taxpayers would doubly benefit by both generating a higher credit amount and being able to apply more of the credit against their payroll tax.

Withum is here to provide a “complimentary assessment” review to determine if businesses have any qualified R&D activity worthy of pursuit.

Authors: Kevin McNulty, Principal  |  kmcnulty@withum.com  and Tyler Collins  |  tcollins@withum.com

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