Boost Your Startup with the Revamped R&D Tax Credit: What You Need to Know

Oct 18, 2023


The landscape for small businesses and startups is constantly evolving, especially when it comes to taxes. One area ripe for taking advantage of is the Research and Development (R&D) Tax Credit. Recent changes in tax laws have made this opportunity even more enticing. Let’s dive in and examine what the Inflation Reduction Act of 2022 has in store for you.


What’s New?

The Inflation Reduction Act of 2022 has brought some significant amendments to the R&D Tax Credit, making it more accessible and beneficial for qualified small businesses (QSBs). The maximum credit limit that can be applied against payroll taxes has been increased from $250,000 to a whopping $500,000 for tax years starting after December 31, 2022.


The Basics

The R&D Tax Credit, or IRC 41, offers taxpayers a credit against income tax for qualified research expenses (QREs). Previously, the credit was calculated as 20% of the excess of a taxpayer’s QREs over a base amount. Alternatively, taxpayers could opt for the Alternative Simplified Credit (ASC) which offers a credit of 14% of the QREs over 50% of the average QREs for the preceding three years.


How Does This Benefit Startups?

If you’re a startup with limited income tax liability, this is excellent news. You can opt to apply the R&D tax credit against your payroll taxes, specifically your share of Social Security and now, Medicare tax as well. This creates a significant cash flow advantage, particularly for startups still in the growth phase.


How to Claim the Credit

To claim the credit, you’ll need to fill out Form 6765 and attach it to your timely filed income tax return. If you’re claiming the payroll tax credit, complete Form 8974 and attach it to your employment tax return. For those with older elections carrying into 2023, the new rules allow for those credits to be applied against both Social Security and Medicare taxes.


Maximizing Tax Benefits for Your Business

The recent changes to the R&D Tax Credit are game-changers for startups and small businesses. With increased credit limits and the ability to offset Medicare tax, now is an opportune moment to capitalize on these benefits.

However, understanding and applying these tax provisions can be complicated. That’s where Shay CPA P.C. comes in. We specialize in conducting R&D Tax Credit studies that provide the robust documentation you need to support your credit claims.

Don’t navigate this complex terrain alone. Contact us today to optimize this valuable tax credit and propel your business forward. Let’s get those numbers working for you!

Would you like to ensure you’re maximizing your tax benefits? Reach out to Shay CPA P.C. to get started!