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Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

gusto.com

11–20 of 80 posts

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#11
post #7

As an accountant I have had to shoot attempts at claiming this credit down time and time again. Unless you are doing cutting edge/novel research into AI, machine learning, quantum computing, etc you will not qualify for the credit. Think about it this way, unless your research is something you could write a scientific paper on and have it published in a peer reviewed journal, it will not qualify. Also, this is not a…

It's working! I didn't know about this credit and I'm fairly sure we qualify. I think many companies building internet infrastructure can.

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#12
post #2

Interesting and could be helpful, but I'd like more details about the "new Federal R&D Tax Credit" specifically Is it this (which does not appear to be new) or something else? https://en.wikipedia.org/wiki/Research_%26_Experimentation_T...

2 things are new: - Before, you could only offset your corporate income taxes, so you couldn't claim the credit if you weren't profitable (because you wouldn't have corporate income taxes). Now, you can offset social security taxes, which are based on payroll. So more startups can now benefit from this credit. - Gusto has rolled out an new tool that allows their customers to much more easily claim their R&D tax credi…

There's something gross about being able to avoid social security contributions as a government provided business incentive. I get it wasn't a Gusto decision (and that they're just enabling claiming the benefit), but it's still unsettling.

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#13
The layers of control in the current economy seems boundless. Makes me want to join the goldbugs sometimes. Hard money seems so much simpler and freer. An anonymous, portable, fungible, hard to counterfeit and inflate, universal account of previous work value. People give it to you when you give them something or a service they want. It seems like a system of the people, by the people, and for the people.

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#14
post #13

The layers of control in the current economy seems boundless. Makes me want to join the goldbugs sometimes. Hard money seems so much simpler and freer. An anonymous, portable, fungible, hard to counterfeit and inflate, universal account of previous work value. People give it to you when you give them something or a service they want. It seems like a system of the people, by the people, and for the people.

And after a while, maybe we could pool resources together for projects such as infrastructure, bridges, fire stations, that are too expensive for any single person, but from whom we would all benefit! It would be great! We could all give some of our money for these! Let's call this way of doing things government. Oh wait.

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#15
post #10

What if I have R&D expenses in a side business- can I use the credit to offset my main job's income tax?

I am not an accountant. You may use a loss from a side business in order to offset W-2 income. No need for complicated tax credit forms. Look into the IRS rules around hobbies as they may get suspicious if your "business" loses money for years on end.

This is accurate (I take losses on an LLC occasionally against W2 income).

Regarding business vs hobby criteria: https://www.irs.gov/uac/business-or-hobby-answer-has-implica...

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#16
post #7

As an accountant I have had to shoot attempts at claiming this credit down time and time again. Unless you are doing cutting edge/novel research into AI, machine learning, quantum computing, etc you will not qualify for the credit. Think about it this way, unless your research is something you could write a scientific paper on and have it published in a peer reviewed journal, it will not qualify. Also, this is not a…

Think about it this way, unless your research is something you could write a scientific paper on and have it published in a peer reviewed journal, it will not qualify.

That's not true at all. In the US, at least. As a tax lawyer, I've had to have this conversation quite a few times with accountants who misread the law and don't think it applies to their clients.

The US R&D credit has 4 basic requirements, and "cutting edge" is not one of them, nor has it ever been.. Generally (broadly paraphrased), it is sufficient that the R&D result in new (or improved) functionality, etc. of a business component (specific to the taxpayer), in a systemic process of a scientific, engineering, or computer-science nature.

For example, a game developer developing a new game engine would qualify for the R&D credit; as would a retail company developing an improved inventory system. (The latter is in fact one of the examples that IRS employees give at tax seminars.)

The real issue with the R&D credit isn't claiming the credit; it's supporting the amount claimed with proper and sufficient documentation. It's the documentation part that gets most taxpayers, since the R&D credit is one of the areas that the IRS still devotes resources to auditing.

Further edit: by the way, Gusto's article is about the new small business R&D credit from the Protecting Americans from Tax Hikes Act (PATH) which went into effect for the 2016 tax year. The original credit is limited to taxable income, so you couldn't use it until you had profits or if you were subject to AMT. The new credit applies against federal payroll and AMT.

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#17
post #7

As an accountant I have had to shoot attempts at claiming this credit down time and time again. Unless you are doing cutting edge/novel research into AI, machine learning, quantum computing, etc you will not qualify for the credit. Think about it this way, unless your research is something you could write a scientific paper on and have it published in a peer reviewed journal, it will not qualify. Also, this is not a…

Can you clarify sources for what types of R&D activities apply? I've been curious myself and didn't see this mentioned in the blog post.

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#18
post #7

As an accountant I have had to shoot attempts at claiming this credit down time and time again. Unless you are doing cutting edge/novel research into AI, machine learning, quantum computing, etc you will not qualify for the credit. Think about it this way, unless your research is something you could write a scientific paper on and have it published in a peer reviewed journal, it will not qualify. Also, this is not a…

You don't have to pass the requirements, you just have to pass the person who reviews your proposal. Put enough fancy language in there and you can make it sound like a simple messaging app is cutting edge machine learning. Every company I've worked for has done similar with the Canadian program (SR&ED).

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#19
post #7

As an accountant I have had to shoot attempts at claiming this credit down time and time again. Unless you are doing cutting edge/novel research into AI, machine learning, quantum computing, etc you will not qualify for the credit. Think about it this way, unless your research is something you could write a scientific paper on and have it published in a peer reviewed journal, it will not qualify. Also, this is not a…

But if your startup is developing conversational AI? Wouldn't that qualify? Do you actually have to be publishing? Where's the dividing line in your opinion?

Re: Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

#20
post #7

As an accountant I have had to shoot attempts at claiming this credit down time and time again. Unless you are doing cutting edge/novel research into AI, machine learning, quantum computing, etc you will not qualify for the credit. Think about it this way, unless your research is something you could write a scientific paper on and have it published in a peer reviewed journal, it will not qualify. Also, this is not a…

I know more than two software companies first hand that are not doing "AI, machine learning, etc" who qualified for this in the past.
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