R&D Tax Credit Change Could Put Money in the Pockets of SaaS Companies

Feb 14

While we’re not in the tax preparation business, VisionTech Angels member, Steve Sehy, MBA, 25b7dffCPA, has provided some good information regarding a change in the R&D tax credit that could put some money in the pockets of SaaS companies. Here’s what Steve shared:

The old R&D tax credit rules: If you had an income tax loss, the tax credit didn’t do you much good.  Any tax benefits would apply sometime in the future.

The new R&D tax credit rules:  With the Startup Provision of the new law, a 2016 tax credit can be used against a SaaS company’s 2017 payroll taxes instead of income taxes. Plus, SaaS companies can amend a previous year’s returns to take further advantage of the new provision.

Bottom line: SaaS companies with a tax loss can get an immediate cash benefit.

There are three criteria to qualify for the new tax provision:

  • No revenue prior to 2012
  • No more than $5 million in revenue
  • Qualifying expenditures

How much can a SaaS company expect to save? Let’s do the math using this calculator. If you have $2 million in expenses, of which $1 million supports R&D process and thus would qualify, the federal benefit would be $65,000. The state benefit varies, but for companies in California, the credit would be a much as $75,000.

As stated earlier, we aren’t tax accountants or attorneys. (Steve Iisa CPA.) If you’re a SaaS company and stand to benefit, share this blog with your tax preparer.

Thank you for sharing this info with VisionTech and our members, Steve!

For more information on this topic, here’s another blog from VisionTech Partners’ sponsor Katz, Sapper & Miller. Click here.