The Research Credit is a tax credit for qualified research and development activities. After extending this credit for 20 years, the Protecting Americans from Tax Hikes (PATH) Act of 2015 finally made the Research Credit permanent. There were several other improvements to the R&D Credit in addition to its permanent extension.
For tax years beginning in 2016 eligible small businesses may claim the credit against alternative minimum tax (AMT) liability. An eligible small business is generally defined as a business with average annual gross receipts that do not exceed $50 million for the three year preceding tax period. This can significantly benefit shareholders and partners of pass through entities who frequently find themselves subject to the AMT.
Another improvement to the credit allows start-up small businesses to utilize the credit against their employer payroll tax (i.e., FICA) liability. A qualified start-up small businesses is defined as a business with gross receipts less than $5 million and a business that did not have gross receipts in any year before its fourth preceding tax year.
If you have any questions as to how this applies to your business, please contact your Warren Averett advisor.