Listen Up Startups, The Federal Government Is Giving You Money

jlee /  Dec. 23, 2016

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In 1981, as part of the Economic Recovery Tax Act, Congress enacted a federal R&D tax credit to encourage investment into software and technology. The credit today remains one of the largest incentives for businesses in the US. Historically, the credit was only applicable to deductions in income tax, which made it challenging for startups to take advantage of. This year, congress made the tax credit permanent and allowed credits to be applied towards a payroll tax offset. It’s a no brainer for early stage startups to take advantage of this incentive.

What you need to know:

  1. R&D credit can be calculated on all development/engineering staff, direct supports (project managers, QA, etc), business executives, and consultants/contractors in the U.S
  2. Startups can apply R&D credit against payroll tax — FICA employer portion of payroll taxes starting in 2017
  3. Startups will have to calculate all available R&D credits, prepare interview report memos, provide workpapers to claim credits, and gather supporting documentation to be filed with March/April 2017 tax returns

The tax credit is capped at $250K, which is 1-2 engineers or 140K Dang Coconut Chip bags or 250 DJI Mavic Pro drones to recreate the Battle of Scarif in your office.