Our second 2014 D.C. Fly-In panel this afternoon delved into how federal tax provisions – including tax reform efforts – can help new, small, nimble tech companies grow, hire more qualified workers, and provide new and innovative products and services.
We learned how “the Startup Innovation Credit Act” and other tax provisions directed to small startup companies can create better opportunities for starting and growing tech businesses in the U.S.
Panelists Rick Morgan, policy advisory, Office of U.S. Senator Pat Toomey (R-Pa.) and JJ Singh, economic policy advisor, Office of Senator Chris Coon (Del.), discussed several provisions of the Startup Innovation Act, including:
Startup firms would be allowed to offset their R&D tax credit against federal payroll taxes. While most startups do not pay current federal income taxes, they do have employees for which they incur payroll taxes.
Investors in pass-through startup firms (for example, partnership, S corporations, etc.) would be allowed to offset the R&D credit against their Alternative Minimum Tax. Currently, the R&D tax credit can only be offset against federal income tax liability.
The Alternative Simplified Credit (a simplified R&D tax credit) could be claimed on an amended return. Currently, businesses can only claim the traditional, more complicated R&D tax credit on an amended return.
Morris Panner, CEO of DICOM Grid, talked about several issues it dealt with as a small business, including start-up costs, acquiring talent and building the business. He felt it was important for legislators to understand the lifecycle of a business.
Cynthia Traeger, president of VSI Pacific, also discussed some of the challenges small businesses have, including the importance of reinvesting, as well as moving forward with R&D. She said that given the right type of latitude, start-ups can move innovation forward, but at the same time they need the ability to invest and grow. Traeger added that emerging growth companies bring a lot to the table; on average, small companies can move from concept to consumer in about a three-month timeframe.
The overall message is that the Innovators Job Creation Act will bolster our economy by extending the current availability of the R&D tax credit to both small tech businesses and those who invest in these businesses.
