From the Desk of Lauran L. Stevenson
IRS Issues Guidance on New Option for Claiming Research Credit for Small Startups
On March 30, 2017, the IRS issued interim guidance explaining how eligible small businesses can take advantage of a new option enabling them to apply part or all of their research credit against their payroll tax liability, instead of their income tax liability. Before 2016, taxpayers could only take the research credit against their income tax liability.
The option to elect the new payroll tax credit may especially benefit any eligible startup that has little or no income tax liability. To qualify for the new option for the current tax-year, a business must have gross receipts of less than $5 million and could not have had gross receipts prior to 2012.
An eligible small business with qualifying research expenses can choose to apply up to $250,000 of its research credit against its payroll tax liability. Under a special rule for tax-year 2016, a small business that failed to choose this option and still wishes to do so, can still make the election by filing an amended return by Dec. 31, 2017.