Does the provision for eligible small business credits to eliminate AMT in 2010 carry forward into 2011. If a credit is generated in 2011 can it fully offset AMT? The 2010 R&D generated are the only credits which can be used to offset AMT. This was a special rule for 2010 only. The 2010 credits maintain their ability to offset AMT in the Carry back or carry forward years. However, credits generated in 2011 can not be used to offset AMT.
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For your convenience, we have provided you with the Questions & Answers from the webinar presentation.
Question:
What are the federal carry back and carry forward rules for federal research credits?
Answer:
The Federal carry back rules are Back 1 Year and Forward 20 years.
Question:
If a sole-proprietor is involved in developing computer based technology and has no payroll, will he qualify for the R&D credit?
Answer:
The sole proprietor may still qualify using his self-employed income. There are special rules for self-employed individuals.
Question:
If your company has only been around for 2 to 3 years and is currently in an NOL situation but plans to be profitable in the next year or two which credit would be more advantageous the regular or simplified?
Answer:
Great question - the answer depends on the amount of Qualified R&D expenses and the Gross Receipts. We always calculate the credit under both methods to determine the best one to use. Under the Regular Credit Method, if the company has a lot of Gross Receipts then the required 3% Fixed Base % may not produce the best result. The Alternative Simplified Method (ASC) may give the best result. Definitely a facts and circumstances situation.
Question:
Is electing the reduced credit an annual election or once you elect your stuck with it?
Answer:
Yes - it's an annual election
Question:
Can you discuss again the advantages/disadvantages of electing the reduced credit again?
Answer:
The advantage of taking the reduced credit is it avoids having to reduce the current year R&D Expenditures, and this also carries over as a lower starting point for the State Income.
Question:
If your company is in an NOL situation do you want to elect or not elect the reduce credit? And why?
Answer:
Generally you do not want to elect the reduced credit to preserve the higher credit amount when you can use the credits.
Question:
What is a business component?
Answer:
A fancy term for the new or improved product or process being developed. It can be a shoe, chemical formula, or car, etc.
Question:
R&D expense is spent over the years; how can this be handled in one tax return?
Answer:
Each tax year stands on its own. The credit related to those expenditures incurred, for example in 2011, must be determined for the 2011 credit and can not be carried over to 2012.
Question:
My understanding is that in order to get the credit, the cost must be expensed and not capitalized. Is that correct?
Answer:
Correct.
Question:
If a taxpayer also has a foreign tax credit, would the ordering rules provide that credit be taken before the RD credit ?
Answer:
The ordering rules would apply for this situation.
Question:
any special rules for Sch C businesses?
Answer:
No - they still qualify. It can be very good for them as well due to their income.
Question:
If we have an NOL Cfwd - what is the length of the R & D credit carryover period?
Answer:
Sec. 38 rules apply - It's carry back 1 Yr, and 20 Year carry forward.