PATH Act Creates Permanent Expansion of the R&D Tax Credit

Permanent Tax Relief to Reward Business Innovation

Companies across various industries are able to take advantage of the R&D Tax Credit by offsetting their earned credits against costs their company spent performing research activities to develop or improve their products, processes, and software. Even though the R&D credit was created to boost innovation within United States business and is an extremely lucrative credit, it has not always been a reliable tax break and has only recently become a permanent credit.

The Protecting Americans from Tax Hikes Act of 2015, also known as the PATH Act, has made the credit permanent for the first time in its 34 years, providing stable tax relief to business owners. Before R&D was permanent, companies would anxiously wait to see if the R&D Tax Credit would still be around the following year.  

Offset As Much As $250,000 Against Payroll Tax Liabilities

Besides making the Research and Development Tax Credit permanent, the PATH Act has also paved the way for startups and small businesses to take advantage of the credit. These companies can offset the R&D Tax Credit against their payroll tax liabilities. Traditionally, these companies weren’t able to apply for the credit because they would often remain in losses during their early years of business, before they began generating a profit.

Now, these companies that have been shutout in the past can offset as much as $250,000, and reward their innovative initiatives.

Qualifications for Startups and Small Businesses to Claim R&D

  • Business must have gross receipts of less than $5 Million within the tax year in question
  • Business cannot have any gross receipts dating further back than 5 years
  • Startups cannot be a tax-exempt organization under section 501

Now that the R&D Tax Credit has been made permanent thanks to the PATH Act, businesses can plan to benefit from the lucrative credit for the research and development activities they are performing, and know that their efforts are going to be rewarded on their tax returns.

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