HN Gopher Feed (2017-06-27) - page 1 of 10 ___________________________________________________________________
Reduce your startup's payroll taxes through the new Federal R&D Tax
Credit
106 points by edawerd
https://gusto.com/framework/payroll/new-federal-rd-tax-credit/t/
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jhallenworld - 3 hours 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?
gamblor956 - 2 hours 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).
thephyber - 3 hours 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 - 3 hours ago
No, unfortunately you can't.
uiri - 3 hours 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 - 2 hours 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-implica...
notadoc - 4 hours ago
Interesting and could be helpful, but I'd like more details about
the "new Federal R&D Tax Credit" specificallyIs it this (which does
not appear to be new) or something else?https://en.wikipedia.org/wi
ki/Research_%26_Experimentation_T...
martinpannier - 3 hours 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 - 2 hours 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.
dzink - 2 hours 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 - 2 hours 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 - 1 hours 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.
dragonwriter - 2 hours 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.
jonah - 3 hours ago
Patio11 says that US-based software employers should also look into
the Domestic Production Activities
Deduction:https://twitter.com/patio11/status/879238827612684288
randyrand - 50 minutes 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.
cde-v - 3 hours 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.
cde-v - 1 hours ago
Replying to my own comment since I'm too late to edit. Just read
the regs people, the barriers are not as low as the little bit of
anecdotal evidence in this thread are
suggesting.https://www.irs.gov/pub/irs-
regs/research_credit_basic_sec41...
mbesto - 48 minutes ago
I think most people here are basically saying "its a grey area
and it would be stupid not to take advantage of the credits
even if you feel you don't 100% qualify".
mrkurt - 2 hours 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 - 1 hours 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). 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) 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/
martinpannier - 3 hours 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.
goeric - 1 hours ago
While the R&D tax credit is not new, one of the tweaks was not a
slight change.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.
jgalt212 - 51 minutes ago
> Unless you are doing cutting edge/novel research into AI,
machine learning, quantum computing, etc you will not qualify for
the creditthat's patently untrue, I know plenty of firms claiming
this credit, not doing cutting edge research, and who are not
getting audited.My personal guess on audit risk rule of thumb is
how close to zero does the R&D tax credit get your tax
liabilities. e.g. If after the credit, you still pay a lot of
taxes, your audit risk is low.
gamblor956 - 2 hours ago
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.That's not true at all. In
the US, at least. As a tax lawyer, I've had to have this
conversation quite a few times with accountants who misread the
law and don't think it applies to their clients.The US R&D credit
has 4 basic requirements, and "cutting edge" is not one of them,
nor has it ever been.. Generally (broadly paraphrased), it is
sufficient that the R&D result in new (or improved)
functionality, etc. of a business component (specific to the
taxpayer), in a systemic process of a scientific, engineering, or
computer-science nature.For example, a game developer developing
a new game engine would qualify for the R&D credit; as would a
retail company developing an improved inventory system. (The
latter is in fact one of the examples that IRS employees give at
tax seminars.)The real issue with the R&D credit isn't claiming
the credit; it's supporting the amount claimed with proper and
sufficient documentation. It's the documentation part that gets
most taxpayers, since the R&D credit is one of the areas that the
IRS still devotes resources to auditing.Further edit: by the way,
Gusto's article is about the new small business R&D credit from
the Protecting Americans from Tax Hikes Act (PATH) which went
into effect for the 2016 tax year. The original credit is limited
to taxable income, so you couldn't use it until you had profits
or if you were subject to AMT. The new credit applies against
federal payroll and AMT.
mozumder - 1 hours ago
Also, it's not necessarily a tech requirement. A restaurant
developing a new menu as it tests out recipes is just as much
R&D as anything else.No idea why people think R&D needs to be
cutting edge tech research...
cde-v - 1 hours ago
No... one of the requirements is "research which is
undertaken for the purpose of discovering information which
is technological in nature"
mozumder - 16 minutes ago
Basically all food production is "technological in nature".
webmaven - 38 minutes ago
Might a restaurant specializing in molecular gastronomy[0]
devising new dishes qualify then?[0]
https://en.wikipedia.org/wiki/Molecular_gastronomy
cde-v - 1 hours ago
I agree with all but your first sentence... I think you are
just underestimating what topics can have peer reviewed
scientific papers written about them.http://ac.els-
cdn.com/S235197891500013X/1-s2.0-S235197891500...I was more
taking a shot at the companies who do a redesign/facelift of
their website/customer portal, or a bank struggling to
integrate an off the shelf trading tool into their systems.
tedmiston - 2 hours ago
Can you clarify sources for what types of R&D activities apply?
I've been curious myself and didn't see this mentioned in the
blog post.
cde-v - 1 hours ago
Honestly, as evidenced by the rabid response above, reading the
actual regulations is the best way to understand this
topic.https://www.irs.gov/pub/irs-
regs/research_credit_basic_sec41...
vecter - 49 minutes ago
I have no idea why this is the top most upvoted comment. I know
of many companies doing nothing near the level of cutting edge
R&D work that the poster claims is necessary, but have gotten
substantial tax breaks from this application.cde-v is spreading
categorically false information to the potential detriment of
many entrepreneurs. This comment should be downvoted or flagged.
jbob2000 - 2 hours ago
You don't have to pass the requirements, you just have to pass
the person who reviews your proposal. Put enough fancy language
in there and you can make it sound like a simple messaging app is
cutting edge machine learning. Every company I've worked for has
done similar with the Canadian program (SR&ED).
geoka9 - 1 hours ago
> Put enough fancy language in there and you can make it sound
like a simple messaging app is cutting edge machine
learning.Good luck if you get audited, though.
jboggan - 2 hours ago
But if your startup is developing conversational AI? Wouldn't
that qualify? Do you actually have to be publishing? Where's the
dividing line in your opinion?
mbesto - 2 hours ago
I know more than two software companies first hand that are not
doing "AI, machine learning, etc" who qualified for this in the
past.
arikr - 1 hours ago
Yeah, oddly enough I believe this accountant is 100% incorrect.
Kiro - 1 hours ago
Why do you shoot down attempts instead of letting them try? Is
there any downside of trying and get rejected? Judging by the
comments it sounds like you risk shooting down attempts that may
actually succeed.
arikr - 1 hours ago
As far as I can tell this accountant is spreading misinformation.
(I've never written that before!)I've talked to other companies
doing nothing related to novel research, just standard SaaS, who
were able to get a healthy sized deduction.Please don't let this
person dissuade you from checking if you can get the credit.To
the accountant - please see all the comments below yours and edit
your post, unless you have evidence against them. Your comment
may well make people not apply for this who could've gotten the
deduction without issue.
nodesocket - 1 hours 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.
njarboe - 2 hours 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 - 2 hours 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.
njarboe - 31 minutes 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.
thaumasiotes - 2 hours ago
Governments have operated without fiat currency for a long,
long, long, long time.
solotronics - 2 hours 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.