The R&D Tax Credit can now be taken against AMT!
If you’re an innovative business who has thought about – or is thinking about – claiming the R&D tax credit, now is your time to do so. Here’s why:
Tax benefits can add up for businesses, and can significantly reduce their tax bill. So a supplemental tax called the alternative minimum tax, or AMT, limits how much a person or business can gain from such benefits.
According to the IRS, alternative minimum tax “applies to taxpayers with high economic income by setting a limit on [tax] benefits. It helps to ensure that those taxpayers pay at least a minimum amount of tax.”
Traditionally, certain businesses claiming the R&D tax credit were only able to use it to reduce their tax bill to AMT (alternative minimum tax), but not below it. Because the credit could not lower their tax bill below AMT, they would simply have to book the credit forward to the following year, therefore limiting the immediate effect and the appeal of the research credit.
However, In December of 2015, Congress eliminated the AMT restriction on businesses claiming the R&D tax credit.
If AMT restrictions were previously limiting your immediate benefit and keeping you from further reducing your tax bill with the R&D tax credit, you can now use the research credit to reduce your tax bill lower than ever before.
Who qualifies for the AMT offset?
IRS guidelines define an eligible business as either a corporation not publicly traded, a partnership, or a sole proprietorship. In addition, the business’s average annual gross receipts for the previous 3-year (taxable) period should not exceed $50,000,000 (IRC Section 38(c)(5)(C)).