Claiming the R&D Tax Credit for LLC’s
The process of claiming the R&D Tax Credit can be complex. We see a lot of companies believing it’s “not worth the hassle.” At Swanson Reed, we focus solely on R&D and can help you with the process.
Depending on your business organization type, the specifics of filing can vary. Make sure to speak with a specialist before submitting your claim. Here is some information about claiming the R&D tax credit as a Limited Liability Company (LLC).
LLC Filing Dates
LLC’s are initially treated like a sole proprietorship or partnership with an initial filing date of April 15 and an extended filing date of October 15. The cut-off date for an amended return is the filing date plus three years.
LLC’s can elect to be change their fiscal year and be treated like a corporation for tax purposes. Changing their fiscal year to corporate treatment allows an LLC to move its tax preparation activities to a date of low operational tempo. Avoiding the April 15th filing date allows the LLC to issue K-1’s to owners and partners before their personal returns are due.
If an LLC elects to be treated like a corporation, then the initial filing date is the last day of the fiscal year plus two and a half months. The extended filing date is the initial filing date plus six months. The cut-off for an amended return is the date the claim was filed with the IRS plus three years.
For filing dates for tax years beginning after December 31, 2015 click here.
LLC’s issue K-1’s to the owners and partners. When the LLC files an amended return, new K-1’s are issued to the owners. The K-1’s pass through income, losses, deductions and credits to the owners. The owners will then use form 1040X to amend their personal returns. The 1040X will reflect the gross R&D credit, a tax on that credit, and it will trigger a payment to the owner for the net R&D credit.
In order for an owner to realize a benefit from an amended year, the LCC must have met its cut-off date for amending its Form 1065 and issuing K-1’s to the owners. Without the K-1’s from the LLC, the owners have no basis for amending their personal returns, regardless of their filing dates. If the K-1’s are received in a timely manner, then the owners can amend their personal returns according their circumstances.
The R&D Tax Credit
The R&D tax credits are designated in Part III of the K-1. Ultimately, “flow-through” incomes and credits hit the individual taxpayer’s personal return, Form 1040. The individual, therefore, benefits by his/her share of the R&D tax credit.
The R&D tax credit flow-through should be significant to justify amending a tax return. Remember that amending returns authorizes the IRS to review the entire year.
LLC’s do not have to be profitable in the year in which they want to claim an R&D credit, but they must be actively engaged with carrying on a trade or business. They cannot be merely investing in someone else’s activity or acting as a conduit.