Are you a small business filing taxes for the first time? Or maybe you are a small business with a tight budget that might need some more support. The Research and Development (R&D) tax credit may be the answer you are looking for. No longer is the R&D tax credit just for lab coats and large corporations. A 2015 provision from the United States government has allowed many small businesses to qualify for the R&D tax credit. Our experts at National Tax Group share how small businesses may qualify below.
What is the R&D Tax Credit?
The R&D tax credit supports the growth and innovation of businesses across America. With federal and state credits available across a multitude of different industries, small businesses can qualify and receive more from the R&D tax credit. In order to qualify, companies must perform research or development activities and have thoroughly documented their efforts. For more information about if your state or industry provides an opportunity for the R&D tax credit, please check out the specific pages on our website.
Who Qualifies for the R&D Tax Credit?
The previously mentioned 2015 provision was the Protecting Americans from Tax Hikes (PATH) Act. Small businesses were not previously eligible for the R&D tax credit due to a lack of taxability in payroll tax liability offset: However, the passing of this act made it possible for small businesses and start-ups to qualify for tax credits of up to $250,000.
According to the IRS, an eligible small business is defined as one that has less than $5 million in average gross receipts for 3 years proceeding and did not have gross receipts for any tax year before the 5th tax year ending with the year of the claim. Additionally, small businesses must perform research and development activities that are well documented and qualify for this tax credit. Companies can qualify on both a state and industry level. If state R&D tax credits are available, you are still eligible to qualify for industry-level R&D tax credits.
Lastly, qualified research activities are defined by a 4-part r&d test. Each part of this process is meant to determine eligibility for the R&D tax credit.
How to Claim R&D Tax Credit
The R&D credit can be an excellent benefit for small companies, especially start-ups that are developing new products or modifying existing ones. The rules for qualifying can be complex but ultimately can reap benefits for any growing company.
To learn more about the R&D tax credit for small businesses and to find out if your business qualifies, contact a National Tax Group professional for your free assessment.