More Companies to Benefit from the R&D Tax Credit!

After learning that the Protecting Americans from Tax Hikes (PATH) Act of 2015 was signed into law late last month, I got a call from past MMT "tax" contributor Scott Schmidt of the Black Line Group. The vote on the Act prompted him to reach out to me to discuss the changes, so I wanted to quickly share them with MMT readers. 

Schmidt explains that among other provisions, the Act permanently extends the Research and Development Tax Credit for the first time in the credit’s 34 year history. The credit is permanent for costs related to qualified activity incurred after December 31, 2014.

The R&D tax credit is often overlooked, especially in industries such as mold manufacturing and plastics manufacturing. "Within these environments, it is likely that a lot of mold development and/or process development will occur, which translates to high potential for qualified R&D activity. While wages typically constitute the largest portion of a company’s R&D tax credit, plastics and moldmaking companies may also incur significant supply cost expenses," says Schmidt.

He goes on to say that recent court cases have provided that if a company is building experimental molds, the mold expenses are includable in qualified supplies, as long as the tools are not being depreciated by the company.

According to Schmidt, the PATH Act also includes the following enhancements to the R&D credit:

1. Eligible small businesses, defined as those with average sales of less than $50 million over the prior three tax years, will be able to use the credits to offset Alternative Minimum Tax (AMT) for tax years beginning after December 31, 2015.  (AMT has been a huge roadblock for shareholders of S Corps/flow-through entities in the past!) 

2. Certain qualified small businesses may now use the R&D credit to offset their Payroll Tax/FICA liabilities beginning in tax years after December 31, 2015. These companies must have sales of less than $5 million per year, and the credit is limited to $250,000 for each eligible tax year for no more than 5 years.

With tax season now upon us, it is a great time to evaluate whether your company would benefit from the R&D Tax Credit. Check out the upcoming Black Line Group/Society of the Plastics Industry (SPI) webinar, "Injecting More Cash into Your Bottom Line with the R&D Tax Credit" on January 19, 2-3PM EST. Click here for more information and to register.