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Tax Savings for Startup Companies

Jan 17, 2019

Most startup companies go into business planning to operate at a loss for a number of years, withstanding the expenses of running a business without much income in order to make their dreams a reality. But you can alleviate some of the financial burden. The Research and Development (R&D) Tax Credit offers an incentive for startup companies and eligible small businesses to offset the employer portion of their payroll taxes up to $250,000 each year for up to five years. Any payroll credits exceeding the payroll tax liability will carry forward to future quarters until they have been fully utilized. This allows companies to receive a benefit for their R&D activities regardless of whether they are profitable.

The payroll tax credit opportunity was established for eligible small businesses, including C corporations, S corporations, partnerships and individuals that have only had gross receipts for five years or less and with gross receipts of $5 million or less in the credit year.

The R&D payroll tax credit offset is available to companies in a wide variety of industries. The credit applies to activities related to new or improved products or processes grounded in physical or biological science, computer science or engineering. The activities must also be intended to eliminate technical uncertainty related to the capability, method or appropriate design, and they must rely upon a process of experimentation to evaluate alternatives to eliminate uncertainty. 

The R&D Tax Credit was originally enacted to incentivize innovation and keep technical jobs in the United States — and what better way to do that than to keep money in the pockets of entrepreneurs? The payroll tax credit must be claimed on an originally filed return, so contact Wipfli today to make sure you aren’t missing out on a valuable tax-savings opportunity.


Kendra M. Goodman, CPA
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