By Erika Diebert, ASL Tax Senior
There is an opportunity for Qualified Small Businesses (QSBs) to utilize their unused federal 2016 R&D credits against their 2017 payroll tax liability (Employer portion of FICA). This was enacted as part of the PATH Act of 2015 but is just now becoming available starting with the income tax filings for the 2016 tax year.
The offset of payroll taxes will be available for R&D credits generated on the 2016 tax return from R&D expenses incurred in 2016. R&D credit carryovers from years prior to 2016 cannot be used. The maximum benefit allowed to be claimed in a tax year is $250,000. An election to use the credit against payroll taxes is made on an originally and timely filed (including extensions) Form 6765 by completing section D of the form. (more…)
My blog of June 17, 2015 discussed the “100% Penalty” that the IRS may assess against a “responsible person” if their business entity fails to deposit payroll taxes that have been withheld from employee wages. Even “responsible persons” of business entities that use a third party payroll service to process their payroll and make their payroll tax deposits may find themselves subject to this penalty. The IRS does not relieve “responsible persons” of their responsibly to ensure the timely payment of payroll deposits just because a third party was engaged to handle this task.
When a business faces a cash flow crunch it will seek to minimize cash payments. Usually the firm’s vendors are the first to be impacted by cash flow issues. These vendors may include the Internal Revenue Service that is owed employee payroll tax withholdings. Delaying payments to the IRS can be a very costly mistake. The IRS is trying to increase its enforcement in this area as a May 2014 Treasury Inspector General for Tax Administration report found that as of June 2012 the IRS was owed $14.1 billion in delinquent, unpaid payroll taxes.
In frustration a client asked me this question recently as we concluded our meeting. Our meeting began as the client proudly announced that their Company’s sales department was expanding by hiring a new sales person living in Florida. The new sales person would cover clients in Florida and come to Company headquarters in California for two weeks a month. I asked how the employee felt being subject to California tax withholding living in “tax-free” Florida. The client replied by asking why would the employee be subject to California tax being a resident of Florida, working in Florida and servicing clients in Florida? Welcome to the confusing world of payroll taxes.
Guest Blogger: Roger Royse of Royse Law Firm. After months of economic studies and discussions with small business owners, San Francisco city officials have proposed to replace the city’s payroll-based business tax with a gross receipts-based tax. The idea has resonated with local technology-minded entrepreneurs, who may see their tax liability substantially reduced if voters approve the shift in November.