Using R&D Tax Credit to offset the alternative minimum tax (AMT) may be most applicable for mid-stage startups.

Overview

On December 18, 2015, the Consolidated Appropriation Act ("the PATH Act") provided two new tax benefits for eligible small businesses. One of the benefits is the offsetting of the alternative minimum tax ("AMT") liability for qualified small businesses. Effective for tax years beginning after December 31, 2015, a qualified small business may elect to apply a portion of its R&D Tax Credit against its AMT liability or, in the case of pass-through entities, their owner's AMT liability. The corporate AMT, much like that for individual taxpayers, kicks in when a company's income tax liability falls below a certain level.

General Qualifications

The following qualifications should be considered in order to be qualified to offset the payroll tax:

  • The average gross receipts for the 3-tax-year period preceding the credit year cannot exceed $50 million.
    • If the small business was not in existence for the entire three year period, then the gross receipts requirements if applied on the basis of the period during which such entity was in existence.

Restrictions

  • Only eligible to non-publicly traded corporation, partnership, or sole proprietorship.
  • Definition of gross receipts (Sec. 1.448-1T(f)(2)(iv)) for AMT election is not identical for the purposes of Sec. 41-3(c)(2).
  • For a short tax year, gross receipts are annualized by multiplying the gross receipts for the short period by 12 and dividing the result by the number of months in the short period.
  • For corporations and partnerships, the gross receipts and the credit limitation applies on a controlled group basis.

Find out how Pinecone41's R&D Tax Credit expertise can help your startup.

 

* Please note that the information presented on this page are to be regarded as general information, and should not be interpreted as tax, financial, or legal advice.