The Tax Cuts and Jobs Act (TCJA) has had enormous, far-reaching consequences on many tax issues. One often-overlooked change is The one currently looming on the horizon is the five-year amortization of R&D expenses that went into effect as of January 1st, 2022.
When it comes to claiming R&D tax credits, many taxpayers are unaware of the rules allowing them to carryforward the unused portion of their research tax credit. In most situations, a company that has qualifying research expenses but no income can carryforward the credit to offset tax liabilities on future profit. Any unused R&D credits will carry forward for up to 20 years. In addition to carryforwards, the research tax credit can also be carried back one year.
The Research and Development (R&D) tax credit can benefit startups and small companies through something known as the Payroll Tax Credit. The R&D payroll tax credit became available to qualified small businesses through the Protecting Americans from Tax Hikes Act of 2015 (The PATH Act). This tax law created an opportunity for qualified small businesses to offset all or a portion of their contribution to payroll tax using federal R&D tax credits for up to five years. Prior to this time period, businesses could only take the research credit against their income tax liability.
When it comes to determining how to offset payroll tax with R&D tax credits, business owners and executives interested in saving valuable payroll tax dollars need to understand the following key points.