Why Blockchain Technology Companies Are Utilizing The R&D Tax Credit.
Still mainly known for cryptocurrency transactions, blockchain technology has the potential to dramatically enhance a wide variety of processes, techniques, and industries in the future.
What is Blockchain?
The blockchain is an immutable, encrypted and decentralized ledger with the potential of making every centralized process, activity, and organization fully autonomous. Hundreds of startup companies have formed over the last several years to focus on this emerging technology.
What is the R&D Tax Credit?
In part, the federal Research and Development credit (R&D Tax Credit) is meant to incentivize the development of innovative technology within the United States. This dollar-for-dollar tax credit typically comes out to about 5 to 7% of R&D spend, which includes wages allocated to R&D activities in the US, supply costs used in the R&D process and US-based outside contractor costs in connection with R&D activities.
In December 2015, the Protecting Americans from Tax Hikes (PATH) Act was enacted which made the R&D tax credit permanent. In addition, beginning in 2016, the credit can be used to reduce Alternative Minimum Tax (AMT) for companies (and the owners of flow thru entities) with under $50 million in gross receipts (3-year prior average).
Also beginning in 2016, the PATH Act provides that companies meeting its definition of a startup company will be able to use federal R&D tax credits to reduce a significant portion of their federal payroll taxes (specifically, the employer’s Social Security portion of FICA). In order to qualify for this election, a company needs to have under $5 million of gross receipts in the respective year and can have no gross receipts prior to the five year period ending with the year in question. A qualifying company can make this election for up to five years, and it can use up to $250,000 of R&D tax credits per year to reduce payroll taxes.
The Future of Blockchain
Blockchain is quickly moving beyond merely the technology that provides bitcoin and other cryptocurrencies to one with the potential to transform the operating models for entire industries.
Here are a few of the startups that are hoping to make this happen.
Rivetz is a hardware-based security and identity company using both trusted computing and blockchain technologies to provide cybersecurity solutions. Its technology combines a hardware-based cybersecurity with the immutable attestation offered by the blockchain. The company is building a Global Attestation and Identity Network and has strategic partnerships with Telefonica and Trustonic, to name a few.
ShipChain’s platform enables companies and individual buyers to track products across the entire supply chain as they move between all carriers, instead of just one or more single access points as is currently the case.
Telegram, which already has over 100 million active users, is proposing an open network which is essentially a decentralized WeChat. According to TechCrunch, it will act as “a platform for future ICOs, future cryptocurrencies, future decentralized applications and a new kind of censorship-proof internet system.”
Filecoin is looking to disrupt the cloud storage industry. They are attempting to create a distributed data storage network in which participants earn the company’s cryptocurrency, called filecoin, by leasing out their spare digital storage.
Grid+ is the world’s first blockchain-based energy retailer with market-driven pricing. They are offering consumers direct access to wholesale energy markets through blockchain, creating a secure Ethereum-enabled gateway that stores cryptocurrencies and processes payments for electricity in real time.
PokitDok, based in California, is among a host of startups looking to apply blockchain for healthcare verticals such as claims, pharmacy, and identity management. It has developed DokChain, a “distributed network of transaction processors operating on both financial and clinical data across the healthcare industry.”
Blockchain is becoming a transformative technology that will greatly enhance the way companies do business going forward. The PATH Act rules for startup companies can help all of the new companies involved with this exciting technology to preserve their cash by reducing a significant portion of their payroll taxes with R&D tax credits.
National Director of R&D Tax Credit Services