R&D Tax Credit - Schedule C - Sole Propietor

Technical topics regarding tax preparation.
#1
JCCPA  
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23-May-2014 2:00pm
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New Hampshire
Hi All:

I'm doing some research today with a client. Client is a software engineer and files Schedule C as a Single Member LLC.

I've done some R&D Tax Credit work in the past for a few clients, however, I've never had a sole proprietor Schedule C with an R&D Tax Credit.

My specific question is wages paid. Of course, client doesn't receive a W-2 as he's a Sole Proprietor.

Section 41(b)(2)(D) (the R&D Tax Credit Section) defines wages for Self-Employed individuals as "in the case of an employee (within the meaning of section 401(c)(1)), the term "wages" includes the earned income (as defined in section 401(c)(2)) of such employee.“

Section 401(c)(1) - is "Self-employed individual treated as an employee." Section 401(c)(1)(B) states – The term “self-employed individual” means, with respect to any taxable year, an individual who has earned income (as defined in paragraph (2)) for such taxable year.

Section 401(c )(2)Earned income starts with “(A)In generalThe term “earned income” means the net earnings from self-employment (as defined in section 1402(a))….”

Section 1402, of course, is the self-employment income section.

I am trying to figure “Wages” for purposes of Form 6765, Line 5 or Line 24.

The Form instructions are silent with respect to this.

Simply put, I define Wages for Lines 5 or 24 of Form 6765 (R&D ) Credit Form to simply be his net Schedule C Self-Employment Income.

Does anyone out there have any experience with wages for self-employed sole proprietors with respect to the R&D Tax Credit?

Thank you in advance.

~JC
 

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