In this part of our series on the credit for increasing research activities (research credit), we’ll take a look at how to claim the credit.
(For previous articles in this series:
- Click here for Part 1, discussing what constitutes qualified research.
- Click here for Part 2, discussing the type of expenses which qualify for the credit.
- Click here for Part 3, discussing how the credit is calculated.)
Claiming the Credit
To the figure and claim the research credit, you must complete and attach to your tax return IRS Form 6765, Credit for Increasing Research Activities.
The credit is nonrefundable; as such, it can be used to reduce your current income tax liability to, but not below, zero. Eligible small businesses with gross receipts of $50 million or less may use the credit to offset their alternative minimum tax (AMT) liability, if any. Any unused research credit for the current year can be carried back one year, then carried forward for up to 20 years.
A qualified small business may elect to claim a portion of their research credit, up to a maximum amount of $250,000, against their employer share of FICA payroll taxes rather than against income taxes as noted above. A qualified small business is one that has less than $5 million of gross receipts and has only had gross receipts within its previous five tax years. This election cannot be made if you have previously made such an election for five preceding tax years.
The election to claim the credit against payroll taxes is made on Form 6765. IRS Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Activities, is used to calculate the amount of the credit against payroll taxes allowable on Form 941, Employer’s QUARTERLY Federal Tax Return. The credit is available in the first calendar quarter beginning after the date on which you file your income tax or information return. If the amount of the credit exceeds the amount of your quarterly payroll tax liability for that quarter, the excess may be carried forward to the following quarter.
Conclusion
The research credit is a valuable tax break for qualifying taxpayers. We would be glad to discuss with you any questions you may have as to how this credit may affect your particular business. Contact Edwards, Ellis & Associates today.
