PATH Act of 2015 Overview: Impact on R&D

On Dec. 18, 2015, the President signed into law the “Protecting Americans from Tax Hikes (PATH) Act of 2015”.  The PATH Act effectively makes significant changes to the R&D tax credit in its application and availability to business owners. Below you will find these changes, with a brief description and the significance to businesses.

 

R&D Tax Credit permanence

Before signing this law, the R&D tax credit was generally extended biannually for 1 to 2 years, which frequently left taxpayers uncertain of its application to their upcoming tax return, and limited their ability to plan for future activities and tax liability offsetting opportunities. The PATH Act makes the R&D tax credit permanent, retroactively, as of 1/1/2015.

 

R&D R&D Tax Credit AMT offset

Previously, qualifying companies could not take advantage of the credit if they were subject to AMT regulation. The R&D tax credit is now available for AMT liability offset thanks to the PATH Act changes.Additionally, as part of the PATH Act, small businesses (defined as non-public companies with less than $50 million in average annual gross receipts for the previous three years) can permanently use research credits generated after January 1, 2016 against both regular tax, and AMT.

 

R&D R&DR&D Tax Credit payroll tax offset

Prior to the PATH Act, start- ups were unable to generate enough income to have a federal tax liability, and could not take immediate advantage of the R&D tax credit, having to roll it forward in hopes of future tax liabilities. The PATH Act has added a benefit to help early-stage, start-up companies by allowing eligible start-ups, with less than 5 million in gross receipts, to offset up to $250,000 of payroll taxes , starting 1/1/2016, giving an immediate benefit from the R&D tax credit.

 

Now, with the changes introduced in the PATH Act, business owners have the ability to do long-term planning and forecasting to ensure they are taking advantage of the R&D tax credit to its maximum potential.
If you think that you, or your clients, could benefit from the changes made to the R&D credit due to the PATH Act, and would like to learn more about how to benefit from them, please contact Bedford’s R&D tax specialist at Taxcredits@bedfordteam.com