The Internal Revenue Service last Thursday provided interim guidance for small businesses looking to take advantage of the new option for claiming the research credit.
The December 2015 Protecting Americans from Tax Hikes (PATH) Act – aside from requiring the IRS hold returns claiming the EITC and ACTC to verify the identity of the taxpayer – included a provision that changed the way businesses could apply the research credit. Previously, eligible small businesses could only claim the research credit against their income tax liability. Now, taxpayers filing a 2016 federal income tax return can claim the credit against their payroll tax liability.
In the article, the IRS noted that this new option could be beneficial for startup businesses, since they often have “little or no income tax liability.”Here are a few more details about claiming the research credit: • The business must have gross receipts that are less than $5 million. • The businesses cannot have gross receipts prior to 2012. • Up to $250,000 of the research credit can be applied against payroll tax liability.
To claim and apply the credit against payroll tax liability, file Form 6765, Credit for Increasing Research Activities, with a business income tax return, and then fill out and attach Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, with a payroll tax return.Source: Internal Revenue Service