R&D tax credit became a permanent financial tool for startups in 2015, following its introduction in 1981

The R&D tax credit, introduced in 1981 and recognized under the PATH Act in 2015, remains a crucial advantage for startups, allowing claims against payroll taxes up to $500,000 annually.

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The Headline

Utilizing the R&D tax credit: Eligibility and record-keeping

Maximum gross receipts for startups to apply R&D tax credit
$5 million
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Maximum amount of R&D tax credit applicable annually
$500,000
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Key Facts
  • Startups with less than $5 million in gross receipts can apply the R&D tax credit against payroll taxes for up to $500,000 annually, regardless of profitability.
  • Maintaining accurate records throughout the year for R&D activities, financial records, and related expenses is crucial for startup eligibility.
  • The IRS employs a four-part test to determine qualification for the R&D tax credit based on technological nature, improvement aims, addressing uncertainty, and systematic experimentation.
Background Context

Historical context of the R&D tax credit and its significance

Key Facts
  • The R&D tax credit was introduced in 1981 and made permanent in 2015 under the PATH Act, serving as a valuable financial tool for startups.
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