On Friday December 18, 2015, the President signed into law what normally would be a ‘tax extenders’ bill but with respect to the R&D tax credit, the credit was made permanent and no longer will expire every year or two. Companies can now rely on the R&D tax credit in planning for capital spend and in tax provision calculations. The U.S. was one of the few countries where this important incentive expired regularly and retroactively has to be reinstated – this has been occurring since the R&D tax credit was enacted in 1981.
Other important incentives will kick in as of 2016 such as use of the R&D tax credit even in AMT situations – the R&D credit for businesses with less than $50 million in receipts can use the R&D credit to offset AMT. Also businesses with less than $5 million in receipts can offset payroll taxes with the R&D tax credit up to $250,000 which will provide more working capital for smaller start up companies. Both provisions will help millions of small businesses to continue to develop product and incentivize R&D spending in the U.S.