Form 8974 and Form 6765: An Overlooked Cash-Saving Opportunity for Businesses

The federal research and development (R&D) tax credit is a great incentive for companies who want to invest in research. The US government offers this reward through taxes so that businesses can keep them competitive on innovation within their industry. But how do you claim it? Well…the answer lies in Form 8974 and Form 6765.

The tax credit results in the dollar-to-dollar reduction for your business’ various tax liabilities. The qualified research expenses (QREs) generally include the development, design, or improvement of software, formulas, techniques, or processes.

To make your claim process smoother, here’s a quick guide to Form 8974 and Form 6765. 

Use Form 8974 to Claim Your Credit

Small and mid-size businesses (SMBs) use Form 8974 to track the following:

• The generated amount of their qualified R&D payroll tax credit
• How much credit remains to use against the employment tax return
• How much credit gets utilized

Form 8974 determines how much of your qualified small business payroll tax credit you will be able to claim on the employment taxes that are associated with increasing research activities.

If your startup or small business is claiming for a tax credit through Form 6765, you must attach Form 8974 to your employment tax return (Forms 941, 943, or 944) to evaluate the actual tax credit amount for research.

View or Download the form here: https://www.irs.gov/pub/irs-pdf/f8974.pdf

How Form 6765 Benefits Your Startup

Form 6765 is the key to maximizing your research and development credits. It is used to calculate and claim the research credits your business is entitled to. Under the Internal Revenue Service (IRS) tax code  U.S. Code § 280C this form refers to the “Credit for Increasing Research Activities”. Generally, it is known as the R&D Tax Credit Form. It can help small businesses and startups save up to $250,000 on payroll taxes.

The IRS has defined certain research and development activities for eligibility. If your startup is engaged in those activities, Form 6765 is for you. The R&D tax credit is a great incentive for cutting payroll taxes. It can effectively lower an unprofitable company’s burn rate by reducing the employers’ portion of social security payments, making them more competitive with other businesses in their industry.

Note: Not all businesses qualify for research and development tax credit. You must have a word with your accountant to ensure you qualify.

Or, simply redirect the readers to the IRS link.

Contact The Best Consultants for Your FREE Tax Assessments

Startups and small businesses should consider R&D tax credits to see they can make most of this cash-saving opportunity. And, filling out these forms is necessary to receive your credits.

Contact us for professional assistance on Form 8974 and Form 6765 and a free assessment from our experienced consultants!

Fill out our contact form to book a call and we will contact you within 1 – 2 business days.

You can also click here to calculate your tax credit. 

Frequently Asked Questions

Why Should I File Form 6765?

Startups can get up to $250,000 in cash refunds by filing Form 6765, even though they are running at loss. Click on our <free calculator> to find how much your business can get back with R&D credit.

What is the Process to File Form 6765?

This form is filed as a part of package 1120 — also known as the Annual Income Tax Return for C-Corporations. 

Form 6765 is accompanied by several other forms as follows:

Form 3800 — General Business Credit within the 1120 package

Form 8974 — Qualified Small Business Payroll Tax Credit

Your business must complete the following sections of Form 6765 to document the eligible research expenses:

Section A: To claim the regular credit, and it has eight lines (lines 1,2,3,7,8,10,11 and17) of necessary data.

Section B: This refers to the alternative simplified credit (ASC)

Section C: To identify other forms and schedule warrants based on company structure

Section D: This is only needed for qualified small businesses that make a payroll tax election 

Is it possible to add multiple credits from different years to Form 8974?

Yes, you can add multiple credits from different years to Form 8974 at any given time. You can involve every successive R&D tax credit to Form 8974 by adding it in the next row. 

What if We Forget to File the Form 6765?

In this case, you won’t be able to claim your research and development tax credit. However, there are a few exceptions. Contact us to know more!