It's not often that you hear, "Hi, we're from the federal government, and we're here to help you," and it turns out to be true. But this time it is. Finally, after many years of renewing the "temporary" R&D tax credits—sometimes retroactively—Congress did the right thing and gave the tax credits permanent status. Now it's up to each of you out there in the processing and moldmaking industries to take advantage of this, without worrying whether or not you'll actually be getting this credit if Congress gets in a budget snit.
Now that the R&D Tax Credit has been made permanent—which is "huge news," commented Scott Schmidt of the Black Line Group, a company that provides consulting services to manufacturers—it will provide even small manufacturers the opportunity to reduce their tax liability. But, says Schmidt, there is even bigger news ahead in 2016. "The Alternative Minimum Tax (AMT) was a big roadblock for many, but now that limitation goes away, which means tons of shareholders of S corporations/flow-through entities will now be able to use credits!" Schmidt exclaimed.
Moreover, certain companies—startups that are less than five years old with less than $5 million in annual revenue—will be able to apply up to $250,000 in R&D expenses against their payroll tax liability.
Schmidt reminds us that "companies that have not been claiming credits in the past need to start documenting their qualified R&D activities now," and that means you need to talk to your tax accountant or a consultant specializing in R&D credits to see what activities qualify. That way you will have "a solid year of tracking by the time you start working on your 2016 taxes a year from now," advises Schmidt.
This is well worth your while. Moldmakers and processors do more R&D activity than they realize and many are under the mistaken idea that R&D tax credits are just for large corporations that have laboratories. You need to check it out. It's worth it.
William R. Carteaux, President and CEO of SPI: The Plastics Industry Trade Association, commented on this and several additional tax breaks in the budget deal: "The U.S. Senate voted today to deliver a huge benefit to America's economy by passing several key tax measures. They will permanently extend the Research & Development Tax Credit, extend ‘Bonus Depreciation,' permanently extend Section 179 ‘Small Business Expensing' and grant a two-year moratorium on the medical device excise tax. Combined, these provisions help ensure that businesses throughout the plastics industry value chain can invest with certainty and keep the U.S. on the cutting edge of economic growth and technological innovation."
If you want more information on the R&D Tax Credit program, the SPI will sponsor a free webinar with the Black Line Group on January 19, 2016.
For background information, qualification advice and the history of the R&D tax credits, read the following articles that have been published in PlasticsToday: