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Start-up companies in the U.S. can obtain immediate cash flow and payroll tax savings through the R&D Payroll Tax Credit – this complements the CARES ACT

The Protecting Americans from Tax Hikes Act (PATH Act) provides that certain startup companies may elect to use the research tax credit to offset the social security (OASDI) payroll tax liability.

A corporation or partnership (C Corp, S Corp, LLC), if:

The gross receipts of the entity are less than $5,000,000, and

The company is less than 5 years old

Typical Qualifying Activities

  • Innovation/customization for product development or an existing business process
  • Safety, testing for durability or quality
  • Trials and errors
  • Patents, or patent pending
  • New or existing technological activities and challenges
  • Uncertainty of an outcome of a business product or process
  • Improvement of operational reliability, performance, and efficiencies
  • Tooling and equipment fixture design or development
  • Designing or engineering
  • Prototyping and modeling
  • Development or enhancement of software applications or internal-use-software
  • Experimentation of a product or process

Case Study Examples

Case Study 1

We are a 2-year company with elevated R&D and payroll expense.  We have no choice but to ramp up operations for the new phone app that we are developing.  We expect to be profitable sometime between year 6 and 7

2nd Year Gross Receipts                                        
$0

Expenses                                          
$1,700,500

R&D Expenses                                            
$1,008,900

$100,890 R&D Tax Credit with Election Payroll Taxes to be used against each Payroll 941 Quarterly until exhausted

Case Study 2

We are a true Start-Up Company in all ways!  A 4-year old company developing special Drone technology that the government needs in great demand.  In addition to increase in payroll going from 11 to 19 full time employees, we also spent heavily on prototype material along with combination hardware and software. Contractors were involved for product development and testing.

4th Year Gross Receipts                                         
$0

Expenses                                                     
$2,700,400

$309,600 R&D Tax Credit with Election Payroll Taxes and balance to future Income Taxes:

$250,000 to be used each Payroll 941 Quarterly until exhausted

$59,600 balance to future Income Taxes

The FI Group is an International leader that specializes in the implementation of research and development (R & D) tax credits/refunds for corporations. The FI team consists of CPA’s, engineers, IT, legal, and business operation specialists. With over 12,500 clients in 12 countries, our client’s benefits exceed more than $1.5 B in tax savings annually. 

For a free consultation and assessment, please contact us here

Bruce Kletsky – Managing Director