2019 Year-End Tax Guide

THE MARCUM 2019 YEAR-END TAX GUIDE | www.marcumllp.com

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The payroll credit is limited to $250,000 per year for up to five years, and any unused portion can be carried forward to future years. The tax credit may also be claimed if the business uses a Certified Professional Employer Organization (PEO). This provision allows qualified small businesses the ability to utilize the R&D credit against payroll taxes and obtain an immediate cash savings in a loss year rather than carrying forward a credit.

Effectively using this credit will help increase a company’s cash flow by reducing tax liability and the amount of quarterly tax estimates due. In addition, businesses might be eligible to claim the credit retroactively by amending returns prior year returns. Contact your Marcum tax professional in order to determine if your business qualifies for this benefit.

ALTERNATIVE MINIMUM TAX RELIEF

Another benefit under the PATH Act of 2015is the ability to utilize the R&D tax credit to offset AMT (Alternative Minimum Tax) for taxpayers with $50 million or less in average annual gross receipts in the three preceding tax years. GENERAL GUIDELINES The R&D credit is calculated by determining the amount of QREs for the company’s current and prior years. The QREs include wages, supplies used in the R&D development, and a percentage of fees paid to third party contractors. In order to meet the definition of qualifying research expenditures, research activities performed in the United States need to satisfy a four-part test: 1. The work is being performed to develop new or improved business component (product, process, technique, formula, invention, or computer software component). 2. The activities are performed to discover information that is technological in nature. The activities involve physical, biological, engineering, or computer sciences. 3. The research is performed to eliminate technical uncertainty, determine if a desired result could be achieved, how to achieve it, or determine the specific design of a product. 4. The activities will include a process of experimentation involving identification of the technical uncertainties, alternatives to consider in eliminating the uncertainties and a process for evaluating alternatives. The TCJA and PATH Acts have significantly increased the value of R&D development activities and the potential opportunity to leverage the R&D tax credit as a part of a taxpayer’s year-end tax planning. In addition to the federal credit, many states have their own Research & Development credits.

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