Payroll Tax Credit Strategies

Many of our clients claim their R&D tax credit and then go on to apply these credits against future payroll taxes. This is a dollar for dollar offset of a Qualified Small Business’ (QSB) OASDI liability (reported quarterly on Form 941). Note that any amount claimed as a credit against your payroll tax is not allowable as a payroll tax deduction.  Only QSBs can elect the payroll tax credit. According to the IRS, your business is considered a QSB if it has the following characteristics: QSBs that intend to elect the payroll tax credit should know of a few limitations:

Happy Tax Day 2019!

Happy Tax Day 2019! Today is the last day for calendar year end C-Corps (Form 1120) and Individuals (Form 1040) to file their 2018 taxes. If you can’t file by the end of the day, make sure you file an extension that will give you an additional six months to complete and file your tax return.

If your C-Corp is a Qualified Small Business, try to file by the end of March. Here’s why.

Mid-March is the tax deadline for calendar year end Partnerships (1065) and S-Corps (1120s). That is unless your company decided to extend its filing which would give you an additional six months to file. Mid-April is the tax deadline for your personal taxes (1040) as well as calendar year end C-Corps (1120). For our C-Corp clients that meet the requirements of a Qualified Small Business (per the IRS), and who plan to file by the April deadline, we actually encourage they file their Federal tax return by the end of March. The reason is because March 31st is the end of Q1 and these clients can start applying their R&D tax credit against Q2’s payroll taxes. Because 4/1 to 4/15 … Read More

Calculation changes on IRS Form 6765

Whether you claim the Regular Credit or the Alternative Simplified Credit, you will be getting a 21% bump in the R&D tax credit versus last year’s calculation!

Happy New Year! And Important Deadlines for your 2018 Taxes

Happy new year! We hope your holiday season was filled with peace and joy and that your new year brings in lots of fortune and success! With the start of the new year, we enter into tax season. Below are important dates for calendar year end companies. Remember, even though calendar year end C Corps are able to file in April, April falls in Q2. Meaning if the C Corp elects the payroll tax credit, they will not be able to monetize their R&D tax credit until Q3. That said, we encourage C Corps to try to file before the end of March.

Happy Holidays!

We at Tax Credit Hero wish you peace, joy, and happiness this holiday season and in the coming year!

Happy Thanksgiving!

Happy Thanksgiving from the team at Tax Credit Hero. We are thankful for our families, friends, mentors, supporters, and clients. Thank you so much for being part of our journey this year. We hope your day is filled with love, laughter, and gratitude.

Payroll Tax Credit – Quick tips!

The payroll tax credit is the ability for many small businesses to apply their R&D tax credits against future payroll taxes. We’ve put together a few tips below for qualified small businesses to keep in mind as you plan for tax season in the spring. Finally, there are some limitations to keep in mind regarding the payroll tax credit.

The Process of Experimentation Test for Software Development

To qualify as research and development per the Internal Revenue Code (§41), the taxpayer must show that the activities pass the four-part test. Today we are focusing specifically on the process of experimentation test (§41(d)(1)(C)). The term process of experimentation means a process that involves the evaluation of more than one alternative designed to achieve a result where the means of achieving that result is uncertain at the outset. Software development projects typically follow a certain development methodology such as: Generally speaking, these methodologies are processes of experimentation and include a cycle of requirements gathering and specification, design, coding, testing, performance tuning, and product release. Oftentimes certain sub-processes during development are repeated or iterated as the software is built to … Read More

How can your small business use its R&D tax credit if you do not owe an income tax this year?

There could be many reasons why your business may not owe income tax in a given tax year. But you are certain your business conducts research and development (R&D), has expenses related to R&D, and would like to claim the R&D tax credit. What options do you have? While it is true you mainly use the R&D tax credit to offset income taxes, dollar for dollar, recent changes to the tax law, specifically the PATH Act, now allows qualified small businesses to apply up to $250,000 of their R&D tax credit against payroll taxes. A qualified small business (QSB) has: Keep in mind, you must have payroll (i.e. W2, full-time employees) to owe payroll taxes. In addition, as a QSB, … Read More