Due to the coronavirus pandemic, the US Treasury department and IRS recently announced the extension of the federal income tax filing due date from April 15 to July 15, 2020. Likewise, many states have also extended their tax filing deadlines until the summer. According to Secretary Steven Munchin, “All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.” He further adds, “I encourage all taxpayers who may have tax refunds to file now and get your money.”
This is a challenging time for the US economy, but the current administration has been finding effective ways to mitigate economic impacts of coronavirus on many industries and businesses. Startups and small businesses are seeking financial relief, as they are forced to shut down their storefronts and have employees work from home. For those companies, now is the time to look at every resource available to improve cash flow management. One of the most effective ways to get tax savings for your business is the Research & Development (R&D) Tax Credit, which can be claimed at the federal level and on most state tax returns.
What is the R&D Tax Credit?
On the federal level, there are two versions of the R&D Tax Credit that eligible companies can claim.
- The traditional R&D Credit that has existed since the early 1980’s allows companies of any size across a wide variety of industries to reduce income tax liability on a dollar for dollar basis. Many states offer their own form R&D Credit that can be claimed alongside the federal credit on their state tax returns.
- With legislation changes in 2015, eligible startups and small businesses can use the R&D Credit to reduce payroll tax liability on a dollar for dollar basis. This is called the Payroll Tax Credit.
What does this mean for my small business?
Claiming the R&D Tax Credit for your business can mean immediate savings on your taxes owed in 2019, and refunds on qualifying activities from 2016, 2017 and 2018. The next section explains how the new tax filing deadline benefits C-corps, S-corps, LLCs, and Partnerships.
If you are a c-corporation, the July 15 tax filing deadline allows you additional time to benefit from the R&D Tax Credit this year. If you are eligible, it can mean the following for your business:
- Immediate reduction in your income and/or payroll tax liability,
- Credits banked for use against future income tax liability,
- Increased business valuation, and;
- Freeing up cash to for your business amid current economic uncertainty.
S-corp, LLC and Partnerships:
If your company is an s-corporation, LLC or partnership, it could still be a beneficial time to take a second look at your 2019 returns and consider amending for potential refunds before your members and owners file their tax returns.
For small businesses, startups and early-stage companies in any industry, R&D Tax Credits can offer a much-needed source of financial flexibility when other avenues become risk adverse. During this time, and more than ever, Leyton’s commercial, technical and tax teams are ready to support businesses like yours.
With over 20 years of global experience in R&D Tax Credits, Leyton’s team of highly experienced scientists, engineers, tax consultants, and attorneys is fully prepared to help businesses take advantage of federal and state innovation funding strategies.
Contact us today to assess your claim viability and achieve maximum eligible financial benefit for your business.