There’s Still Time to Realize Significant Savings!
Many early stage technology companies will be claiming the R&D tax credit for the first time on their 2016 federal tax returns. For companies who may be eligible but have yet to explore this opportunity, or for companies looking for guidance – fear not! There is still time to claim these tax credits and realize the savings in the second quarter of 2017. Here are some key points to consider:
- The R&D tax credit must be claimed on an original federal income tax return. If a Qualified Small Business (QSB), defined as a company that is under $5MM in gross receipts for 2016 with less than 5 years of gross receipts prior to 2016, wants to take advantage of the payroll tax offset, it must claim the credit on its originally-filed 2016 federal income tax return. QSB’s may not amend a tax return to get the payroll tax offset, although a regular income tax offsetting R&D credit may be claimed on an amended return.
- It pays to file in a timely manner. Because the R&D credits cannot be applied against payroll tax until the quarter following the filing of the federal income tax return, interested companies should consider filing 2016 income tax returns no later than March 31, 2017. Filing by this date will allow companies to apply the credits, and realize the associated savings, starting April 1, 2017. For the 2016 tax year, C-Corporations now have until April 15, 2017 to file income tax returns. Filing the C-Corp return early will allow for earlier use of those payroll credits and realization of the savings.
- Contact your payroll provider. As many early-stage companies outsource payroll functions, it is important that interested companies discuss the payroll tax offset with their payroll provider. Since the payroll provider will ultimately be responsible for applying these credits against payroll taxes and handling the reporting, the sooner you can notify them of forthcoming credits, the better they can plan for addressing the incentive. Also, companies who use a Professional Employer Organization (PEO) can realize savings via the payroll credit as well, since the PEO can apply payroll credits against its member-companies share of payroll taxes.
While time is of the essence, startup companies who may be able to benefit from this incentive shouldn’t view the calendar as an excuse. TRCG stands ready to help eligible companies with this incentive. If you believe your company may be eligible, please contact us.