Young companies in the medical field can claim the lucrative and often overlooked Research and Development tax credit to earn big.
Entrepreneurship can be an adventurous career path. Many medical startups experience growing pains such as staff turnover and debt that hinders business growth. To help businesses thrive, it’s important for entrepreneurs and stakeholders to be informed of federally-sponsored tax opportunities. Currently, the U.S. Research and Development tax credit can put hundreds of thousands of dollars back into the pocket of medical companies performing innovative activities.
What is the R&D Tax Credit? What is the R&D Tax Credit?
The Research and Development tax credit was created by the U.S. government in the 1980’s to support innovation in businesses and to reward them for performing research activities in the country. The credit can be used to offset costs spent during the research and development processes.
At first glance, medical startups appeared to be perfect applicants for this tax credit, as many of these companies generate new products or processes. However, because most startups do not generate revenue during their first several years in business, they were disqualified from receiving any R&D tax credits.
This changed in 2015 when The Path Act extended R&D to include and benefit startup companies and small businesses. These companies now have the power to offset as much as $250,000 against payroll tax liabilities each year.
How Do I Know if I Qualify for Vermont’s R&D Tax Credit?
To claim both the state and federal R&D credits, your company must be a C-Corporation, S-Corporation, LLC or Partnership that performs Qualified Research Activities (QRAs). To be deemed a QRA, business activities must pass the IRS’s 4-Part Test.
How Medical Startups Can Qualify for R&D
To qualify for the Research and Development tax credit, medical startups must meet the following criteria:
- Startups must have gross receipts of less than $5 million for the tax year that they’re filing in
- Startups must have gross receipts for five years or less.
- Business cannot have any gross receipts further back than 5 years
- Startups cannot be a tax-exempt organization under section 501
How National Tax Group Can Help Your Startup
Our tax experts have 20+ years of experience helping medical startups and businesses leverage their highest tax returns. Call National Tax Group at (561) 257-3436 to see if your startup qualifies for a lucrative R&D tax credit. Your initial assessment is always free.