9 ms·

Reduce your startup's payroll taxes through the new Federal R&D Tax Credit

205 points by edawerd 9y ago

notadoc 9y ago
Interesting and could be helpful, but I'd like more details about the "new Federal R&D Tax Credit" specifically Is it this (which does not appear to be new) or something else? https://en.wikipedia.org/wiki/Research_%26_Experimentation_Tax_Credit https://en.wikipedia.org/wiki/Research_%26_Experimentation_T...
- martinpannier 9y ago
  2 things are new: - Before, you could only offset your corporate income taxes, so you couldn't claim the credit if you weren't profitable (because you wouldn't have corporate income taxes). Now, you can offset social security taxes, which are based on payroll. So more startups can now benefit from this credit. - Gusto has rolled out an new tool that allows their customers to much more easily claim their R&D tax credit, taking on much of the grunt work. Disclaimer (?): I'm a PM on Gusto's payroll team
  - toomuchtodo 9y ago
    There's something gross about being able to avoid social security contributions as a government provided business incentive. I get it wasn't a Gusto decision (and that they're just enabling claiming the benefit), but it's still unsettling.
    - dragonwriter 9y ago
      There's nothing wrong with it if the funds still get to the trust fund as a transfer from general revenue funds. Now, I don't think that's actually what the policy change has done, but the problem isn't allowing firms to offset the tax.
    - dzink 9y ago
      Actually, it is the right kind of incentive. If you are doing innovative work - go hire more people, because your payroll will be lighter.
      - toomuchtodo 9y ago
        At the expense of shortchanging an already underfunded social program. The right kind of incentive would be a grant, just like the earned income tax credit which comes out of the general fund. It wasn't enough to get rid of pensions, stagnate wages, shift most income to the top 1%. Now we're going to fund innovation out of the piggy bank of the social program that keeps most elderly out of poverty. That's my point. It's the wrong way to build a business incentive. No offense intended to Gusto.
        martinpannier 9y ago
        Credits like these don't necessarily affect the actual money flowing into social security—social security is just used as a "taxation basis" in this case. That being said, that is a hypothesis—I'd have to look at the precise funding plan.
jhallenworld 9y ago
What if I have R&D expenses in a side business- can I use the credit to offset my main job's income tax?
- thephyber 9y ago
  Not an accountant, but the article states is applies against the business's social security taxes: > Beginning in 2017, qualified small businesses may claim up to $250,000 per fiscal year, applying it against their Social Security taxes.
- martinpannier 9y ago
  No, unfortunately you can't.
- uiri 9y ago
  I am not an accountant. You may use a loss from a side business in order to offset W-2 income. No need for complicated tax credit forms. Look into the IRS rules around hobbies as they may get suspicious if your "business" loses money for years on end.
  - toomuchtodo 9y ago
    This is accurate (I take losses on an LLC occasionally against W2 income). Regarding business vs hobby criteria: https://www.irs.gov/uac/business-or-hobby-answer-has-implications-for-deductions https://www.irs.gov/uac/business-or-hobby-answer-has-implica...
- gamblor956 9y ago
  No, the credit claimed for the side business can only offset income from the side business, and only if your side business is incorporated (but S corporations count).
cde-v 9y ago
As an accountant I have had to shoot attempts at claiming this credit down time and time again. Unless you are doing cutting edge/novel research into AI, machine learning, quantum computing, etc you will not qualify for the credit. Think about it this way, unless your research is something you could write a scientific paper on and have it published in a peer reviewed journal, it will not qualify. Also, this is not a new R&D tax credit, it was extended, again, for the umpteenth time. There were slight changes made in addition to the extension, but they did not change what qualifies as qualified research. Gusto is trying to drum up business, that is all.
- martinpannier 9y ago
  We're only enabling those startups that already qualify for the R&D tax credit to much more easily, and cheaply, claim it. We've seen accountants charge customers up to 25% of the credit obtained, and we think we can help.
- mrkurt 9y ago
  It's working! I didn't know about this credit and I'm fairly sure we qualify. I think many companies building internet infrastructure can.
  - mnierstedt 9y ago
    Hi there. Another PM chiming in from Gusto on Federal R&D :). While you may be eligible, you will need to make sure that you have filed Form 6765 with your 2016 Corporate Tax Return. The good news (I guess) is that if you didn't file this form you can amend you Corporate Tax Return (https://www.irs.gov/pub/irs-pdf/i6765.pdf https://www.irs.gov/pub/irs-pdf/i6765.pdf). However, just be advised that the process to amend a corporate tax return is often pretty painful. So you may want to be sure that the credit will be worth your while. It sounds like you are eligible, but I would double check with an accounting firm just to be sure. If you go to our accountant page (https://gusto.com/partners/find-an-accountant https://gusto.com/partners/find-an-accountant) look for "Offers R&D Tax Services" on their company listing. This should give you some very reputable firms to work with on your credit study. Good luck with your Credit! Michael from Gusto https://www.linkedin.com/in/michaelnierstedt/ https://www.linkedin.com/in/michaelnierstedt/
jonah 9y ago
Patio11 says that US-based software employers should also look into the Domestic Production Activities Deduction: https://twitter.com/patio11/status/879238827612684288 https://twitter.com/patio11/status/879238827612684288
njarboe 9y ago
The layers of control in the current economy seems boundless. Makes me want to join the goldbugs sometimes. Hard money seems so much simpler and freer. An anonymous, portable, fungible, hard to counterfeit and inflate, universal account of previous work value. People give it to you when you give them something or a service they want. It seems like a system of the people, by the people, and for the people.
- ovi256 9y ago
  And after a while, maybe we could pool resources together for projects such as infrastructure, bridges, fire stations, that are too expensive for any single person, but from whom we would all benefit! It would be great! We could all give some of our money for these! Let's call this way of doing things government. Oh wait.
  - thaumasiotes 9y ago
    Governments have operated without fiat currency for a long, long, long, long time.
  - njarboe 9y ago
    Was not criticizing the government in particular, just commenting on one aspect of how monolithic systems over time become inscrutable to the humans that have to use them. See Kafka who lived under the Austro-Hungarian Empire for some famous literary examples.
- solotronics 9y ago
  If these characteristics of money are appealing to you check out Bitcoin. Its digital, distributed, decentralized, and impossible to counterfeit which as a programmer and engineer I find incredibly fascinating.
  - ceejayoz 9y ago
    I can't tell if you're being sarcastic or if you genuinely think someone on HN hasn't heard of Bitcoin.
nodesocket 9y ago
What sort of expensense qualify as R&D? If I have a small SaaS business (operating as an LLC), does it even make sense to pursue this? I'm always looking for ways to reduce my tax liability as revenue is about 6x of expenses.
randyrand 9y ago
I've read that Trump's tax cuts are only supposed to help the top 0.4%. I don't think small business owners area allowed to use this tax credit if they're not part of the 0.4%. /sarcasm. Point being, clearly I've been hearing some lies. I hadn't heard of this yet and I'm sad my news bubble is such a bubble.
- URSpider94 9y ago
  That's because Trump had nothing to do with enacting this. It was passed in 2015. https://www.mossadams.com/articles/2016/february/r-d-credit-can-help-offset-payroll-taxes https://www.mossadams.com/articles/2016/february/r-d-credit-...
  - mnierstedt 9y ago
    Yeah this was passed with bi-partisan support. The idea was to help small businesses be able to take advantage of the R&D Credit that has existed since 1981. Since the amount could only before be claimed against Corporate Income Tax you couldn't utilize the credit unless you had profits to offset. Since most small businesses run at a loss or zero profit this was a solution to allow them to get the benefit.
dnh44 9y ago
In the U.K. you can trade in your R&D tax credit for cash. Protip: Instead of living off savings it may be beneficial to lend money to your startup in order to pay you so the wage can count towards an R&D credit. But make sure to see an accountant to make sure the numbers work in your particular case.

205 points by edawerd 9y ago

Interesting and could be helpful, but I'd like more details about the "new Federal R&D Tax Credit" specifically Is it this (which does not appear to be new) or something else? https://en.wikipedia.org/wiki/Research_%26_Experimentation_Tax_Credit https://en.wikipedia.org/wiki/Research_%26_Experimentation_T...

martinpannier 9y ago
2 things are new: - Before, you could only offset your corporate income taxes, so you couldn't claim the credit if you weren't profitable (because you wouldn't have corporate income taxes). Now, you can offset social security taxes, which are based on payroll. So more startups can now benefit from this credit. - Gusto has rolled out an new tool that allows their customers to much more easily claim their R&D tax credit, taking on much of the grunt work. Disclaimer (?): I'm a PM on Gusto's payroll team
- toomuchtodo 9y ago
  There's something gross about being able to avoid social security contributions as a government provided business incentive. I get it wasn't a Gusto decision (and that they're just enabling claiming the benefit), but it's still unsettling.
  - dragonwriter 9y ago
    There's nothing wrong with it if the funds still get to the trust fund as a transfer from general revenue funds. Now, I don't think that's actually what the policy change has done, but the problem isn't allowing firms to offset the tax.
  - dzink 9y ago
    Actually, it is the right kind of incentive. If you are doing innovative work - go hire more people, because your payroll will be lighter.
    - toomuchtodo 9y ago
      At the expense of shortchanging an already underfunded social program. The right kind of incentive would be a grant, just like the earned income tax credit which comes out of the general fund. It wasn't enough to get rid of pensions, stagnate wages, shift most income to the top 1%. Now we're going to fund innovation out of the piggy bank of the social program that keeps most elderly out of poverty. That's my point. It's the wrong way to build a business incentive. No offense intended to Gusto.
      - martinpannier 9y ago
        Credits like these don't necessarily affect the actual money flowing into social security—social security is just used as a "taxation basis" in this case. That being said, that is a hypothesis—I'd have to look at the precise funding plan.

jhallenworld 9y ago

What if I have R&D expenses in a side business- can I use the credit to offset my main job's income tax?

thephyber 9y ago
Not an accountant, but the article states is applies against the business's social security taxes: > Beginning in 2017, qualified small businesses may claim up to $250,000 per fiscal year, applying it against their Social Security taxes.
martinpannier 9y ago
No, unfortunately you can't.
uiri 9y ago
I am not an accountant. You may use a loss from a side business in order to offset W-2 income. No need for complicated tax credit forms. Look into the IRS rules around hobbies as they may get suspicious if your "business" loses money for years on end.
- toomuchtodo 9y ago
  This is accurate (I take losses on an LLC occasionally against W2 income). Regarding business vs hobby criteria: https://www.irs.gov/uac/business-or-hobby-answer-has-implications-for-deductions https://www.irs.gov/uac/business-or-hobby-answer-has-implica...
gamblor956 9y ago
No, the credit claimed for the side business can only offset income from the side business, and only if your side business is incorporated (but S corporations count).

cde-v 9y ago

As an accountant I have had to shoot attempts at claiming this credit down time and time again. Unless you are doing cutting edge/novel research into AI, machine learning, quantum computing, etc you will not qualify for the credit. Think about it this way, unless your research is something you could write a scientific paper on and have it published in a peer reviewed journal, it will not qualify. Also, this is not a new R&D tax credit, it was extended, again, for the umpteenth time. There were slight changes made in addition to the extension, but they did not change what qualifies as qualified research. Gusto is trying to drum up business, that is all.

martinpannier 9y ago
We're only enabling those startups that already qualify for the R&D tax credit to much more easily, and cheaply, claim it. We've seen accountants charge customers up to 25% of the credit obtained, and we think we can help.
mrkurt 9y ago
It's working! I didn't know about this credit and I'm fairly sure we qualify. I think many companies building internet infrastructure can.
- mnierstedt 9y ago
  Hi there. Another PM chiming in from Gusto on Federal R&D :). While you may be eligible, you will need to make sure that you have filed Form 6765 with your 2016 Corporate Tax Return. The good news (I guess) is that if you didn't file this form you can amend you Corporate Tax Return (https://www.irs.gov/pub/irs-pdf/i6765.pdf https://www.irs.gov/pub/irs-pdf/i6765.pdf). However, just be advised that the process to amend a corporate tax return is often pretty painful. So you may want to be sure that the credit will be worth your while. It sounds like you are eligible, but I would double check with an accounting firm just to be sure. If you go to our accountant page (https://gusto.com/partners/find-an-accountant https://gusto.com/partners/find-an-accountant) look for "Offers R&D Tax Services" on their company listing. This should give you some very reputable firms to work with on your credit study. Good luck with your Credit! Michael from Gusto https://www.linkedin.com/in/michaelnierstedt/ https://www.linkedin.com/in/michaelnierstedt/

jonah 9y ago

Patio11 says that US-based software employers should also look into the Domestic Production Activities Deduction: https://twitter.com/patio11/status/879238827612684288 https://twitter.com/patio11/status/879238827612684288

njarboe 9y ago

The layers of control in the current economy seems boundless. Makes me want to join the goldbugs sometimes. Hard money seems so much simpler and freer. An anonymous, portable, fungible, hard to counterfeit and inflate, universal account of previous work value. People give it to you when you give them something or a service they want. It seems like a system of the people, by the people, and for the people.

ovi256 9y ago
And after a while, maybe we could pool resources together for projects such as infrastructure, bridges, fire stations, that are too expensive for any single person, but from whom we would all benefit! It would be great! We could all give some of our money for these! Let's call this way of doing things government. Oh wait.
- thaumasiotes 9y ago
  Governments have operated without fiat currency for a long, long, long, long time.
- njarboe 9y ago
  Was not criticizing the government in particular, just commenting on one aspect of how monolithic systems over time become inscrutable to the humans that have to use them. See Kafka who lived under the Austro-Hungarian Empire for some famous literary examples.
solotronics 9y ago
If these characteristics of money are appealing to you check out Bitcoin. Its digital, distributed, decentralized, and impossible to counterfeit which as a programmer and engineer I find incredibly fascinating.
- ceejayoz 9y ago
  I can't tell if you're being sarcastic or if you genuinely think someone on HN hasn't heard of Bitcoin.

nodesocket 9y ago

What sort of expensense qualify as R&D? If I have a small SaaS business (operating as an LLC), does it even make sense to pursue this? I'm always looking for ways to reduce my tax liability as revenue is about 6x of expenses.

randyrand 9y ago

I've read that Trump's tax cuts are only supposed to help the top 0.4%. I don't think small business owners area allowed to use this tax credit if they're not part of the 0.4%. /sarcasm. Point being, clearly I've been hearing some lies. I hadn't heard of this yet and I'm sad my news bubble is such a bubble.

URSpider94 9y ago
That's because Trump had nothing to do with enacting this. It was passed in 2015. https://www.mossadams.com/articles/2016/february/r-d-credit-can-help-offset-payroll-taxes https://www.mossadams.com/articles/2016/february/r-d-credit-...
- mnierstedt 9y ago
  Yeah this was passed with bi-partisan support. The idea was to help small businesses be able to take advantage of the R&D Credit that has existed since 1981. Since the amount could only before be claimed against Corporate Income Tax you couldn't utilize the credit unless you had profits to offset. Since most small businesses run at a loss or zero profit this was a solution to allow them to get the benefit.

dnh44 9y ago

In the U.K. you can trade in your R&D tax credit for cash. Protip: Instead of living off savings it may be beneficial to lend money to your startup in order to pay you so the wage can count towards an R&D credit. But make sure to see an accountant to make sure the numbers work in your particular case.