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Research & Development credit — what are the potential tax savings and what businesses are eligible

Posted by Mark Martukovich Posted on May 11 2018

The Tax Cuts and Jobs Act (TCJA) may create opportunities for research and development (R&D) credits to be used for tax savings not previously considered. The topics listed below should be evaluated for prospects to use R&D credits:

  • Alternative Minimum Tax (AMT)
  • Tax Rates – Corporate & Pass-Through
  • Net Operating Loss (NOL) Limitations
  • Amortization of R&D Expenditures
  • Retention of Qualified Small Business Payroll Credits
  • Retention of Eligible Small Business Credits

What’s Changed Under The New Laws?

  • Corporate tax rate is now at a flat 21 percent, down from previous top rate of 35 percent
  • Pass-through tax rate deduction of 20 percent of domestic qualified business income; subject to limitation; expires after December 31, 2025
  • NOL deduction is limited to 80 percent of taxable income for losses arising in tax periods beginning after December 31, 2017; no carryback and indefinite carryforward for losses arising in tax periods ending after December 31, 2017
  • AMT higher exemption for individual taxpayers; expires after December 31, 2025
  • AMT is repealed for corporations; AMT credits are refundable from 2018 through 2021.
  • Amortization of certain R&D expenditures (including software development costs) would be required for tax periods beginning after December 31, 2021. These R&D costs would be required to be capitalized and amortized over a five-year period.
    Note:  Current efforts are underway to postpone or eliminate enactment of the Internal Revenue Code (IRC) Section 174 provision.

Articles on this blog are for information only. Always consult with your tax advisor before following any course of action regarding your business, taxes, or finances.

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