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- AMT is repealed for corporations; AMT credits are refundable from 2018 through 2021.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.