Important Considerations for Mid-Year Tax Planning

As the month of June advances, we are rapidly approaching October and the start of a new fiscal year. Although it may seem premature, now is a good time for businesses and individuals to take stock of their tax obligations and identify tax planning opportunities for the year ahead. Ultimately, creating a tax reduction strategy is much easier when you have time to put your plan into action.

In December 2015, the Protecting Americans from Tax Hikes Act of 2015 (PATH) was passed inhibiting a tax increase that would have impacted middle-income taxpayers and families, particularly those with small businesses. The PATH Act made many popular tax benefits permanent, yet the legislation included in the PATH Act is comprehensive and, in some cases, complex in nature.  Therefore, to receive the full benefit of the potential tax saving opportunities, we’ve highlighted a few of the major changes you should consider during your mid-year tax planning efforts.

Most notably, one of the biggest tax breaks included in the PATH Act is the renewal, and permanent extension, of the tax credit for increased research expenditures. The Research and Development Credit (R&D Credit) is valuable, but because of its intricacy, the credit is often misunderstood and overlooked. However, if your business undertakes research in correlation with developing new or improved products, technologies or processes, you may qualify for the R&D Credit. The credit is obtainable to businesses in an extensive range of industries, including manufacturing, technology, healthcare, construction, agriculture, and more.

Moreover, as many businesses that are involved in R&D activities are not yet profitable, the PATH Act now permits for the R&D credit to be claimed against payroll tax liabilities. This drastically changes the way in which the R&D tax credit can be claimed and will provide an instantaneous cash boost to those innovative businesses that need it most. Moreover,  starting 2016, businesses (and business owners) with less than $50 Million in gross receipts can now offset their AMT tax liability with R&D tax credits.

Ultimately, the enhanced capability for more small businesses to use the R&D credit should result in an economic boost to many taxpayers. Start-ups, in particular, can now enjoy current cash benefits rather than having to wait until their companies produce taxable income to take advantage of the credit savings. It is imperative, however, that businesses recognize what kinds of costs are eligible in order to maximize the credit so that appropriate records can be sustained throughout the year. Swanson Reed’s R&D tax professionals are available to discuss the R&D tax credit and the changes in the new PATH Act – contact us today if you would like to know if your company now qualifies.



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