R&D Tax Credits – Tax Cut and Jobs Act of 2017
Historically, one of the biggest hurdles to receiving a current benefit from the R&D tax credit has been AMT (Alternative Minimum Tax). The PATH Act of 2015 helped change this for many taxpayers by eliminating the negative effects of AMT on the R&D tax credit for taxpayers with gross receipts levels of $50 million or less. The recently enacted Tax Cut and Jobs Act of 2017 will now further help taxpayers who were not eligible to take advantage of the benefits from the PATH Act. The Tax Cut and Jobs Act of 2017 has eliminated AMT for corporations and will reduce the effect AMT has on individuals. Individuals will receive an increase in the level of income that is not subject to AMT from $54,300 as a single filer and $84,500 as a married couple filing jointly to $70,300 and $109,400, respectively. Under the old law, this level of income not subject to AMT was begun to be phased out at income levels that exceeded $120,700 for singles and $160,900 for joint filers. Under the new law, these phased rules do not begin until much higher levels of income of $500,000 for single taxpayers and $1,000,000 for taxpayers filing jointly.
Another factor that may have caused many taxpayers to be affected by AMT in the past was personal exemptions and taxes included in itemized deductions taken of their 1040. The new tax law has significantly reduced or eliminated the ability to take advantage of these deductions. By eliminating these deductions, there will be fewer adjustments made to a taxpayer’s income subject to AMT. These changes have a sunset provision and will revert to today’s rules after 2025, but for the next eight years the combination of the higher AMT exemption levels, the increase in the phased thresholds, and fewer adjustments to income subject to AMT will significantly reduce and in many cases, eliminate AMT for taxpayers.
These changes to AMT will be very advantageous to taxpayers who are eligible to claim an R&D tax credit by potentially allowing a higher level of current benefit of the credit.