You Need to Know About the New Federal R&D Tax Credit

Scientific small business uses the new federal r&d tax credit to offset costs

This year there is a new tax credit, and it is a big one. Small businesses who qualify can claim a maximum of $250,000 per year. To help you prepare here is what you need to know about the new Federal R&D Tax Credit.

You Need to Know About the New Federal R&D Tax Credit


What is The New Federal R&D Tax Credit?

The Federal R&D Tax Credit is a tax credit for small business owners to help offset the cost of research and development. At the start of 2017 small businesses can now claim a maximum of $250,000 per year and apply it to their Social Security Taxes.


Who is Eligible?

For your small business to qualify you must meet the following requirements:

  • Less than $5 million in revenue
  • Qualified development and research costs
  • Gross receipts for five years or less

Small business within the technology and science sector are more likely to use this new tax credit. However, small businesses within any industry can qualify if they are actively seeking and developing new products or manufacturing processes.


How Can My Small Business Apply?

Engineering developers use the new federal r&d tax credit to conduct further researchTo start the application process, you must conduct an internal audit of your small business’s research and development expenses. If you have certified paid accountants, it is essential to meet with them to discuss your qualifications. Once you have determined your eligibility and what R&D costs apply you must then file Form 6765.

It is critical to remember that the credit claimed this year is based on your R&D costs for the previous fiscal year. If you wish to claim the credit to reduce your employer social security taxes this year, you would have needed to conduct an audit of last years R&D expenses. This had to be filed on IRS Form 6765 with your previous year’s income tax returns.  


Didn’t File R&D Tax Credit Last Year?

Do not worry the IRS is helping you out this time. If you missed reporting R&D expenses, you can apply the Tax Credit to your small business income tax. However, many small businesses will not have enough income tax liability to use all of the available tax credit.

To help small businesses, the IRS has changed the rules allowing business to apply the credit amount against business Social Security Tax. Once you have filed Form 6765, you can then claim the credit with your Form 941 quarterly tax filing. To claim your available credit you will need to attach Form 8974 to your regularly filed Form 941. The IRS will then issue a refund within 6 to 8 weeks for the Social Security Taxes you paid during that quarter.


Will my Credits Expire?

No, you can apply for any remaining credits in future quarters until the credit is fully claimed. If you fail to claim all credits by the year-end, you can carry unused credits into the next fiscal year.

Visit our sister product TaxBandits to efficiently and securely e-file your IRS Quarterly Form 941 with Form 8974 attachment. If you have any further questions about the new Federal Research and Development Tax Credit, please consult your tax advisor and IRS.


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