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Glitch arises with payroll tax credit for research

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in Office Management,Payroll Management

Small start-up businesses—those with gross receipts of less than $5 million for the taxable year, and that didn’t have gross receipts for the five preceding years, ending with the current taxable year—may take the research and development tax credit against the employer’s share of the Social Security portion of FICA taxes, rather than against their income tax liability.

The credit is taken on Form 941. For calendar year businesses, the first time the credit can be taken is on the second-quarter form, which is due July 31.

Problem: Which tax periods on Schedule B should be reduced to reflect the credit? Solution: According to the IRS, you should reduce the first entry on Schedule B and keep reducing your tax liability until the credit is zeroed out. Credits not zeroed out are carried forward into succeeding quarters.

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