Are you the owner of a small business or a start-up? Are you searching for an opportunity to claim the Research Tax Credit, even if your business is not yet profitable? The payroll (research tax) credit has the potential to be the key to saving money on taxes while also promoting growth in your business. Previously, the research tax credit was only available to larger and more profitable businesses. However, recent changes in legislation have made it accessible to businesses like yours.

Qualified small businesses can now offset the Research Tax Credit against the employer’s portion of the payroll liability. This opportunity can significantly improve your cash flow and provide opportunities to refine your products and processes. For start-ups, this credit can help slow down the burn rate and keep investors happy. A qualified small business is defined as a trade or business that does not generate income in any tax years before the five-year period starting with the credit year. Additionally, the Inflation Reduction Act of 2022 has raised the benefit limit from $250,000 to $500,000. This change allows qualified small businesses to monetize up to $500,000 of Research tax credits that would otherwise be a carry forward credit.

To give you an idea of the potential benefits of the Research tax credit, suppose you have ten R&D employees with an average salary of $150,000. Their total salary amounts to $1.5 million, and the employer’s potential annual payroll tax owed is around $114,750. We also assume the employees’ activities met the criteria that qualify for research credit in the previous year, and the total credit generated was approximately $100,000, you could use this credit to offset the employer’s potential tax due. The net employment tax costs amount to approximately $14,750.

This tax credit could significantly benefit your financial performance. We strongly recommend exploring this option. Do not miss out on this opportunity to save money on taxes and promote growth in your business. Contact us today to discuss whether your business meets the criteria for the Research Credit.