Form 6765 (Credit for Increasing Research Activities) and Form 941 (Employer’s Quarterly Federal Tax Return) were modified to indicate the allowable payroll tax for that year or quarter. In addition, a draft of Form 8974 (Qualified Small Business Payroll Tax Credit for Increasing Research Activities) was released, which provides the connection between Forms 6765 and 941.
Form 8974 provides the calculations necessary to determine the maximum payroll tax credit that can be claimed for that quarter, up to 50 percent of the employer Social Security taxes due. Forthcoming tax form instructions as well as regulations should provide additional information regarding this PATH Act provision.
In addition to the payroll tax provision, another provision of the PATH Act allows eligible small businesses to claim the R&D Tax Credit against alternative minimum tax (AMT). A small business is defined as a private corporation, partnership, or sole proprietorship that have average annual gross receipts of less than $50 million over the previous 3 tax year period.
The new PATH Act provisions will provide new opportunities for companies to claim and utilize the R&D Tax Credit. A discussion should be initiated if your client conducts activities related to new or improved product and process development and was previously unable to utilize the R&D Tax Credit due to tax limitations.
Guest blog from the professionals of McGuire Sponsel, an LBMC strategic partner delivering specialized tax and advisory solutions. They approach their work as trusted resources to CPAs, enhancing those important annuity relationships through innovative tax strategies.