April 15th, also known affectionately as, Tax Day has come and gone for another year. I hope the numbers were kind to you. As Americans, we pay our fair share of taxes based upon our income less whatever deductions we’re entitled to.
Income as reported on our tax forms is important to small-entity inventors. The amount of taxable income makes a significant difference in the amount of patent office fees. The critical threshold is approximately $150,000.00 of income from the previous calendar year.
All small-entity inventors (individuals, small groups and businesses up to 500 employees) receive a 50% reduction in Patent Office fees, while small-entity inventors with income under the $150K mark are considered “Micro-entity Inventors” and are thus entitled to a 75% discount in fees. This is new as of March 16, 2013.
Although $150,000.00 is a quick income test, the actual formula is: three times the national median household income. The $150K number includes the combined income of all inventors and investors. That means that two co-inventors must add their income together. It also means that an inventor and all investors must add everyone’s income together for qualification purposes. Most of our clients do qualify for Micro-entity status.
It is important to keep in mind that the fee classification test must be conducted each time the Patent Office charges a fee. It is possible for an inventor to have micro-entity status at filing only to have their income rise at patent issuance to small-entity status.
While on the subject of taxes, it is worth remembering that the Patent Office receives no tax dollars. None – zero – zilch. The Patent Office survives on the fees they charge all of us. Every year, usually in the last quarter of the year, the Patent Office will adjust fees as their operational needs forecast. Regardless of the time of the year, fees can and have been changed upwards and downwards with little notice.
Since the new patent laws went into effect in March 2013, the Patent Office has been able to keep and use of the all of the fees they collect without Congress using any of the money for other non-patent related purposes. Now that the USPTO can keep what they receive, fees have been reduced and the Micro-entity classification introduced. For just one example, the Issuance Fee for a Utility Patent went from $890.00 for a Small-entity inventor to $480.00 or to $240.00 for a Micro-entity. That is real savings to inventors.