Research Credit Permanently Extended - By Kelly J. Bullis
Updated: Feb 13
Well, Congress did it again! They waited until the end of the year and then passed a big bill that literally had everything, including the kitchen sink, in it. We are all still reading through the thousands of pages and discovering hidden gems.
Here’s one. If your company does any serious Research and Development, you may be pleased to find out that the Research Credit has been made into permanent law. No more waiting to see if it is applicable. Until Congress takes it away, you can plan on it now. What a novel idea on Congress’s part!!! (Sarcasm all over my face as I type that last sentence.)
Basically, the Research Credit equals the sum of 20% of the excess of qualified research expenses over a base amount. (The base amount is a complex computation of it’s own. Suffice it to say that it involves averaging the last 4 years prior to the credit year and applying different percentages based upon whether you are a “startup” company or not.)
But wait, there is a simpler way to compute the credit! (Sounds like an info-mercial doesn’t it?) A taxpayer can elect an alternative simplified research credit equal to 14% of the excess of qualified research expenses for the tax year over 50% of the average qualified research expenses for the three tax years prior to the current tax year. Now that’s simple! (Once again, sarcasm all over my face as I typed the above paragraph.)
Get this! Not only did Congress make this Research Credit permanent, but they tacked a special “gift” onto the end of it for small businesses (less than $5 million in gross receipts). As before, you can use this credit to offset regular tax owed, but you can now elect to use it to offset your employer share of payroll taxes (up to $250,000) instead. (This is for those companies that don’t have a lot of taxable income.) How does that old saying go? “Even a crazy squirrel gets a nut occasionally.”
So, if you do any Research and Development, you should be tracking all your R&D expenses separately. If you are just being lazy and adding them into your regular operations expenses, then you are shorting yourself out of a potential tax credit. Maybe starting in 2016, you should update your accounting procedures to track R&D expenses separately?
By the way, most of those other tax provisions that expired at the end of 2014 have now been retroactively extended through 2016. Yes! You read that right. In December 2016, Congress will NOT be working on tax extensions at the last minute. Now what will they do with all that extra time?
Prov 10:4 “He who has a slack hand becomes poor, But the hand of the diligent makes rich.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.