Rhode Island Inno published an article by Providence Office Managing Partner James Wilkinson, about how start-up companies can use the federal Research and Development tax credit to improve cash flow.
Rhode Island Inno
By James Wilkinson, Office Managing Partner, Providence
Prior to passage of the PATH Act of 2015, the R&D credit was limited to being used to reduce federal income taxes. As many innovative small businesses often will not generate taxable income in their early, formative, exploratory stage, the credit was of limited or no practical use. In 2015 the potential benefit to these companies changed greatly with the provision for qualifying small businesses to utilize the credit to offset an employer’s share of F.I.C.A. payroll taxes. So, instead of accumulating the value of unusable tax credit carryforwards, these credits may now be utilized currently to preserve real, outgoing cash flows that would otherwise be disbursed to the IRS for payroll taxes.