Federal Research Credit Extended and Improved

by Michael J. Devereux II, Mueller Prost

On Dec. 18, President Obama signed the Protecting Americans from Tax Hikes Act of 2015, also known as the “tax extenders package.” We are pleased to announce that the Research Credit has become a permanent fixture of the Internal Revenue Code!

In addition, the tax extenders package makes a number of changes to how taxpayers may utilize their research tax credits, allowing taxpayers to monetize the benefit faster. Here’s what you need to know about the bill:

  • Research Credit Made Permanent
    The Research Credit provision of the bill is retro-active and permanently extends the credit. This provision of the bill is effective for amounts paid or incurred after Dec. 31, 2014.
  • Start-Up Companies to Offset Payroll Taxes with Research Tax Credit
    Beginning in tax years beginning after Dec. 31, 2015, certain start-up companies will be allowed to utilize the research credit to offset the employer’s payroll tax (i.e., FICA) liabilities.
  • AMT Turn-Off
    Eligible small businesses, defined as those with average sales of less than $50 million over the prior three tax years, will be able to offset both regular income tax and Alternative Minimum Tax (AMT) in tax years beginning after Dec. 31, 2015.
  • Impact on Research Credit Claims
    The provisions in this bill are extremely taxpayer-friendly. Coupled with new regulatory guidance issued earlier this year and late last year, taxpayer’s research credit claims, as well as the amount of credit that can be utilized, should grow.

We hope you find this information valuable. As always, we are here to help and welcome the opportunity to discuss these provisions. Please do not hesitate to contact us.

Michael J. Devereux II, CPA, is a partner and director of manufacturing and distribution services at Mueller Prost, a CPA and Business Advisory firm. His primary focus is on tax incentives available to manufacturers. Mueller Prost’s Tax Incentives Group is nationally recognized and has assisted hundreds of companies in the manufacturing sector to identify and utilize these incentives. Mueller Prost is a member of MAPP and offers MAPP members three hours of complimentary tax and accounting advice. For more information, call 314.862.2070 or email mdevereux@muellerprost.com.