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Understanding R&D credit benefits for the life sciences industry


Life sciences companies are among the largest investors in research and development. Millions of dollars are spent each year with the ultimate goal of gaining FDA approval and marketing a successful product. Most of these companies are eligible for the federal research and development (R&D) tax credit based on their activities; however, as these companies are frequently not taxable in the start-up stages, they are unable to take advantage of and utilize this lucrative credit. Historically, the R&D credit was a temporary benefit, which required renewal by Congress on a periodic basis, available for use only against the company’s regular income tax liability. While the credit had a one year carryback and twenty year carry forward period, it was not refundable, and it was not available to offset a company’s alternative minimum tax liability.

In addition to making the research and development (R&D) tax credit permanent, the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), provides two key incentives to eligible small businesses for taxable years beginning on or after Jan. 1, 2016. These incentives include the ability to offset the employer portion of payroll taxes by up to $250,000 per year with the R&D credit, as well as the ability to offset the company’s alternative minimum tax liability.

To help you gain an understanding of the eligibility criteria and to assess whether you should re-examine your eligibility for the R&D credit, read our articles Understanding how the R&D tax credit can offset payroll taxes and Using the R&D tax credit to offset AMT for eligible small businesses.

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John Lanza
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