Congress Permanently Renews the R&D Tax Credit

The Protecting Americans from Tax Hikes Act of 2015 (PATH) extended the R&D tax credit, among other items. Previously a temporary provision, the credit expired December 31, 2014. The renewed credit contains the same provisions as its earlier incarnation and is now permanent.

For those already using the credit, its permanent status means companies can rely on the credit when planning for multiple years’ R&D expenses. The extension also includes a number of other significant taxpayer-friendly changes that include:

  • Allowing small businesses (those with under $50 million in revenue) to utilize the credit by removing the alternative minimum tax barrier beginning in 2016
  • Allowing small start-up companies to utilize the tax credit to offset up to $250,000 in payroll tax beginning in 2016

For companies that haven’t previously utilized the credit, now may be a good time to explore potential savings for 2015 as well as up to three previous tax years.

How It Works

An often underutilized opportunity to reduce a company’s federal income tax burden, the R&D credit offers significant tax savings to those that participate in qualifying research activities by allowing them to include certain expenses directly connected to qualified research in R&D tax credit claims. These may include W-2 wages, supplies, and subcontractor expenses.

Unlike tax deductions, which reduce taxes indirectly by lowering taxable income, the credit offers a direct dollar-for-dollar tax reduction that’s calculated based on a percentage of the qualifying expenses you claim.

Businesses that devote time and resources to any of the following may qualify:

  • Creating new or innovative products or processes
  • Improving existing products
  • Engaging in patent development
  • Developing software
  • Designing and engineering
  • Prototyping, modeling, and trial-and-error testing

We're Here to Help

Moss Adams has an experienced team of tax and industry professionals who can help leverage the R&D credits to which your company is entitled. To learn more about the credit, our R&D tax services, or for help determining whether your business qualifies, email our credits and incentives team. You can also become a part of the conversation and stay up to date on R&D-related news by joining our R&D Tax Credits Forum on LinkedIn.