While many startups have taken advantage of the Qualified Small Business (“QSB”) R&D Tax Credit for the 2016 tax year, many others are missing out. For those companies, there is still time to claim this benefit, which can provide up to $250,000 in annual savings, by December 31, 2017.
What is the QSB Small Business R&D Credit?
The Federal R&D Tax Credit is for small businesses to help offset research and development costs. Qualified small businesses may claim up to $250,000 per fiscal year, applying it against their Social Security taxes.
Is my business eligible?
To qualify for the QSB R&D Tax Credit, a business must meet the three criteria below:
- Have less than $5 million of gross receipts
- Have gross receipts for five years or less
- Have qualified research and development costs
Companies in the technology and science industries are most likely to use this new credit; however, any business could qualify if they are actively developing new products or processes.
How do I get the credit?
Eligible companies must claim the QSB R&D Tax Credit on federal income tax returns. Didn’t file for 2016 QSB R&D tax credits? Don’t worry. If you missed reporting this on your business’s 2016 income tax return, you can still file an amended return by December 31, 2017.
How do I get the money back?
Like many tax credits, you can apply the Federal R&D Tax Credit to your business’s income taxes, but many small businesses don’t have enough income tax liability to use up the credit. So, this year the IRS changed the rules to allow businesses to apply the credit against their Social Security taxes.
After filing Form 6765 with the IRS, you can begin claiming the credit with your next quarterly payroll tax filing. To claim the credit, it must be included on your quarterly Form 941 filing along with a completed Form 8974. The IRS will then issue you a refund for the social security taxes you have paid in that quarter.
Does unused credit expire?
Unused credit does not expire. You can continue to apply any remaining credit each quarter until the credit is fully claimed, and you can carry unused credit forward to the next fiscal year.
How does this work with my payroll provider?
If you would like to claim this credit, talk to your payroll provider to see if they support it.
What are my next steps?
There is still time to get cash back for the 2016 tax year. Please contact TRCG to discuss how we can ensure you realize these savings by year-end.