Small businesses can apply research credit to payroll liability

The IRS highlighted tax benefits and resources designed to help new and existing small businesses who can now choose to apply part or all of their research credit against their payroll tax liability, instead of their income tax liability. The new option is available for the first time to any eligible small business when filing its 2016 federal income tax return and would benefit any eligible startup that has little or no income tax liability. Any small business that has gross receipts of less than $5 million and who does not have gross receipts prior to 2012 would qualify for the new option for the current tax year. A small business, meeting the standard with qualifying research expenses, could choose to apply up to $250,000 of its research credit against its payroll tax liability.
The qualified small business could make the election by completing the appropriate portion of Form 6765, Credit for Increasing Research Activities, and attaching the completed form to a timely filed business return. If a qualified small business has timely filed its return for the 2016 tax year, but failed to make the election, the election could be made on an amended return filed on or before December 31, 2017. After choosing the option, either on an original or amended return, a small business could claim the payroll tax credit by filling out Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities.
The Form 8974 must be attached to its payroll tax return, Form 941, Employer’s Quarterly Federal Tax Return. (IRS News Release RIR-2017-93, May 3, 2017.)

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