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The PATH Act allows certain taxpayers, such as a sole proprietorship, to use R&D tax credits to offset the Alternative Minimum Tax AMT.

Tax Savings for Start-Ups and Small Businesses: R&D Credit Can Now Offset AMT

This is Part 2 of a 2-part series. To see Part 1, please click here.

The 2015 Protecting Americans from Tax Hikes (“PATH”) Act included various changes to the Research and Development credit (“R&D credit”) that are mostly beneficial for start-ups and small businesses.

In the past, the R&D credit could not be used to offset Alternative Minimum Tax (“AMT”), with limited exception. The PATH Act provides the ability for certain taxpayers to utilize the credits to offset both regular or AMT for tax credits generated during tax years beginning on or after January 1, 2016. Credits generated in prior years typically will not be eligible to offset AMT, but can continue to be carried forward to offset future regular tax in accordance with previous tax law.

The AMT offset is available only to eligible small businesses. Eligible small businesses are those that are a:

  • corporation, the stock of which is not publicly traded,
  • partnership, or
  • sole proprietorship.

In addition, the average annual gross receipts of such corporation, partnership or sole proprietorship for the 3-taxable-year period preceding the taxable year must not exceed $50 million. For example, if the business wishes to utilize the credit to offset AMT in 2016, its average annual gross receipts for tax years 2013, 2014 and 2015 must not exceed $50 million. Any partner or S corporation shareholder claiming a pass-through credit must also meet the gross receipts test for its pass-through credit to be eligible to offset AMT. 


EisnerAmper Trends & Developments - March/April 2017

Emmalee MacDonald is a Senior Tax Manager with over 10 years of professional experience, including public accounting and private industry. She focuses on technology and life sciences, manufacturing, and the retail and wholesale industries.

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