Tax Credit Encourages Innovative Small Businesses

By: Joshua C. Eberle, Esquire

The United States House of Representatives Committee on Ways and Means recently extended a tax credit to encourage innovative small businesses – especially startups. The tax deal not only makes the R&D tax credit permanent but also includes two key changes which will be of enormous benefit to small businesses.

First, the legislation allows small businesses to take the R&D tax credit against their Alternative Minimum Tax (“AMT”). Small businesses nationwide are constantly performing work that qualifies for the R&D tax credit, but because of the AMT limitation in place, the small businesses are effectively barred from utilizing the credit. In 2010, congress put in place an AMT turnoff, and for just one year, small businesses saw a massive benefit from the significant tax savings provided by the R&D tax credit. The present legislation reestablishes the AMT turnoff and opens the door for thousands of small businesses to finally take advantage of the R&D tax credit.

One major oddity of the R&D tax credit is that often our nation’s most innovative, cutting edge companies cannot benefit from the R&D tax credit because they are just opening their doors, don’t have income, and aren’t paying federal income taxes. This brings us to the second key change which will benefit small businesses.


The bill allows small business to take the R&D tax credit against their payroll taxes in an amount up to $250,000 per year and for five years. This enormous tax savings will translate into businesses keeping the doors open, new jobs, and new business ideas. This type of incentive will bring much needed energy to the formation of new businesses as well as job creation that will excite any entrepreneur. It is critical that small business and entrepreneurs take advantage of these benefits which reach across many industries including manufacturing, software, agricultural, and more.


Starting a small business is an intricate and taxing process which involves a multitude of important decisions. Understanding the tax benefits and how they apply to your legal entity is of the utmost importance. Contact the business law attorneys at Gilbert Garcia Group, P.A., for a free consultation and let us help guide your small business in the right direction.