The Tax Cuts and Jobs Act (TCJA) was signed in to law last month. The TCJA provides the most significant tax reform since 1986. It includes major reductions in the corporate and individual tax rates, along with the termination or modification of several tax deductions and credits to offset the reduced rates. However, the R&D tax credit, which has served as an effective incentive to stimulate our economy and foster innovation and manufacturing in the United States since 1981, has been preserved.
The bill includes the repeal of Alternative Minimum Tax (AMT) for corporations beginning in 2018. For individuals, AMT is retained, however, for 2018 through 2025, the AMT exemption amount is increased to $109,400 for married taxpayers filing jointly (up from $86,200) and $70,300 for single filers (up from $55,400).
This easing of AMT restrictions, that began the first of this year, will increase the importance of the R&D tax credit for certain companies that are too large to qualify for the “AMT turnoff” as part of the Path Act of 2015. As you recall, in that bill, companies with under $50 million in gross receipts (three year prior average) that are privately held, are able to reduce their tax liability below AMT with R&D tax credits beginning in 2016. However, companies (and the owners of flow through entities) that are too large to meet that definition, would still be limited by AMT when using their R&D tax credits.
“The repeal of AMT for corporations and the loosening of AMT restrictions for business owners, beginning this year, will increase the ability to take advantage of the R&D tax credit for companies that are too large for the ‘AMT turnoff’ as part of the Path Act. This is important to ensure that companies of all sizes, and their owners, will continue to be incentivized to innovate and take risks in order to remain competitive globally,” said David Mayer, National Director of Engineered Tax Services.