AFT!

For years, we wanted to take advantage of the research tax credit. But, the way we ran our firm, that was never possible.

(I’ve explained that we shared our profits with our staff- they got about 40%; the founders got 25%, we used the rest for new capital items or R&D [research and development]- oh, and taxes. But, our tax rate was pretty low, since we were sharing so much of the funds with our staff.)

But, the IRS is now offering something new to smaller firms. One that will prove pretty enticing to spend some money on R&D.
The IRS is taking advantage of some provisions in the PATH (Protecting Americans from Tax Hikes) Act. Most of the law’s provisions were meant to make some of the “temporary” tax deals permanent.  But, this wrinkle involved some creative IRS thought.

This new provision is available now- and since a good number of companies have already filed (only C corporations have a future deadline of 18 April; the rest of the business arena had to file by 15 March), the IRS invites many of us to file an amended return to take advantage of these new provisions. (The credit, using this new procedure, will be claimable through the end of this calendar year, via an Amended Tax Return.)

Notice 2017-23 was promulgated last week (30 March 2017). And, what does this new interpretation of the law provide? The ability of smaller firms to reduce their payroll tax liability, instead of their income tax (which is probably pretty small, given the rules how one can use this provision), if they effect R & D.

Which firms will be able to avail themselves of  this new opportunity? Those firms which didn’t exist before 2012 and currently have gross receipts under $ 5 KK. If your firm meets that criteria, up to $ 250K of money spent on R&D can be employed to reduce the Social Security and Medicare taxes that accrued during 2016 (or 2017).

The first step is to complete Form 6765 (Credit for Increasing Research Activities), choosing the payroll tax credit option. But, of course, you know that getting to use that credit  will still take filling out more forms.

Yup. We need Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities. And, that form doesn’t get filed with our income tax forms- but with Form 941, the Employer’s Quarterly Payroll Tax Return, instead.

You will notice that Form 8974 has some reserved “boxes”;  one can only hope they will be used to afford REALLY small firms, who file Form 944, the Employer’s Annual Payroll Tax Return, to take advantage of this new credit.

 

Getting ready to do your taxes yourself?   This will inform you of what has changed for this year’s (note- we file 2016 taxes in 2017!) filing season.  (Of course, you can contact us-  we’ll ensure that you pay the lowest amount of taxes required by law. 🙂 )