New Payroll and AMT Offsets Expand Opportunity to More Taxpayers

If you’re reading this blog post, it means you’ve survived yet another long tax filing season. Congratulations! (I sure do hope you’ve embarked upon some well needed rest and recovery.)

As you move beyond the stresses of filing season, and begin to focus your efforts and energy into the calmer realm of tax planning season, be sure to incorporate discussions regarding the R&D tax credit with your clients.

Whether it’s a first time client, or an existing client who has explored the opportunity in the past, there are new favorable payroll and AMT tax offsets available beyond that of the standard income tax offset. With these changes to the credit, many more taxpayers will find themselves with opportunity to claim the incentive in 2017 and beyond.

Here are 5 quick fact finding questions to help get you started:

1. Are you developing new or improved products, processes, techniques, formulas, inventions or software? *Note – Process improvements such as the implementation of robotics into a company’s manufacturing line are often overlooked, but typically do qualify for the credit.

2. Do you have a dedicated R&D department and/or a staff of engineers, software developers or chemists? *Note – While the job roles noted above are strong indicators that R&D is taking place, for credit purposes, the actual title of an individual is not controlling. What does matter is that the individual is involved in R&D activity from a direct perspective, or related supervision or support.

3. How much did you spend last year on test materials, prototyping, tooling and non-depreciable equipment, for R&D purposes? *Note – Prototype expenses are includible in the research credit regardless if the prototype is later sold. Note also – If you’re designing or developing molds or dies, there may be an opportunity to pull these costs into the credit calculation.

4. How much did you spend last year on outside vendors assisting with your R&D efforts? *Note – This could include both staff augmentation brought in to assist with an R&D project, and the usage of outside testing labs.

5. In comparison to prior years, is your R&D expense increasing, decreasing, or staying the same? *Note – While an increase in R&D spend would produce the largest credit opportunity, even taxpayers with static spend can still receive a credit if the Alternative Simplified Credit (ASC) calculation method is utilized. Further, even taxpayers with a decreasing spend could still have an opportunity to generate a credit, as long as the decrease is not significant.

Based on the above questioning, should you determine that R&D activity is taking place, it’s highly advisable to seek the assistance of an R&D expert who can help you to understand what your client’s actual opportunity of benefit would be. If warranted, the expert can then perform an R&D tax credit study which ensures that both R&D activities and expenses are being properly documented in support of the credit claim.

About the Author: Bethany Jones-Worner

Bethany Jones-Worner is Managing Director of TCG. With a decade of experience in Research and Development Tax Credit consulting, she’s helped her clients in the banking, software and manufacturing industries save millions.