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Choose new research credit option

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in Small Business Tax,Small Business Tax Deduction Strategies

The IRS is reminding small business owners about a new tax break relating to research expenses.

Alert: A qualified start-up company can now use the research credit to offset payroll tax liability instead of just income taxes. (IRS Internal News Release IR-2017-93, 5/3/17) This change was included in the Protecting Americans from Tax Hikes (PATH) Act of 2015.

The new provision could be especially beneficial for companies that show little or no income tax liability in early years of operation.

Here’s the whole story: Generally, the research credit is equal to the sum of the following:

  • 20% of the excess of qualified research expenses for the year over a base amount
  • 20% of qualified research payments to universities
  • 20% of qualified research expenses by an energy research consortium.

For these purposes, the “base amount” is a fixed-base percentage (not to exceed 16%) of average annual receipts from a U.S. trade or business...(register to read more)

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