IRS Releases Draft Instructions for R&D Tax Credits
The R&D and ERTC tax credits are incredibly valuable opportunities for businesses of all sizes to save money, and in turn, continue to invest in innovation and development. Recently, the IRS issued an early release draft of instructions for completing Form 6765 (“Credit for Increasing Research Activities”). This draft reflects updated legislation, originally enacted December 2020, that specifically defines the definition of qualified wages, which impacts Lines 5 and 24 of the form. It is important for businesses who are looking to claim one or both of these lucrative tax credits to understand exactly the kind and quantity of wages that can be claimed.
While businesses can opt to claim both credits, ‘double-dipping’ is not permitted.
One of the most important details to note is that while businesses can opt to claim both credits, ‘double-dipping’ is not permitted. A business claiming wages for the R&D credit cannot use those same wages to claim the employee retention tax credit. Similarly, wages used to claim ERTC on Form 5884-A cannot be used again to claim the R&D credit. Businesses looking to claim both R&D and ERTC will need to ensure that there is no overlap between the wages used to calculate the two credits.
The draft instructions for filing Form 6765 can be found here, but it is important to note that both draft forms and draft instructions should not be referenced when filing until they are completely finalized by the IRS.
The IRS is expected to finalize all tax filing forms and instructions by the end of January 2022.