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Kuhler Tax Credits – Top 5 Benefits of the (R&D) Tax Credit
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jimsonTop 5 Benefits of the Research and Development (R&D) Tax CreditThe Research & Development Tax Credit was created by Congress in 1981 as part of the Economic Recovery Tax Act as a way to help companies in the United States stay competitive in the global marketplace. Surprisingly, only 1 out of 20 small to mid-sized companies take full advantage of the R&D Tax Credit due to misrepresentation of tax credit laws or lack of information. Let’s review why your company should be claiming the R&D Tax Credit:
Increases a Company’s Bottom Line
The R&D Tax Credit, if applicable to a company, will be able to reduce the company’s federal and state tax liabilities.Companies that are involved in R&D can expect 10-15% or more ROI for their qualifying business activities (wages, contractors, supplies). These credits are also considered an asset; they increase a company’s market value and strengthen them as an acquisition target.The money saved can be strategically invested into new R&D projects which will generate company growth and cash flow for future operations. This federal and state tax credit isa dollar-for-dollar offset against tax liabilities and can be carried forward for up to 20 years.
Motivates National Innovation
The R&D Tax Credit is available forany company that designs, develops or improves products, processes, techniques, inventions, formulations or software. Companies are rewarded for their improvements and the credits help generate higher paying positions and company profits, thus incentivizes better human capital. All these components produce consistent innovation which the US needs to remain competitive, which is ultimately why the IRS wants to give your company ROI.
IRS Broadened the R&D Definition
Recently, the IRS has broadened the definition of what encompasses research and development. QRA, qualified research activity, consists of any activity that falls within the IRS 4-Part Test. The IRS 4-Part Test requires: a new or improved business component (product, process or software), the business component to be technological in nature, elimination of uncertainty, and process of experimentation.
Numerous Industries Qualify for the Credit
Under recent regulations, more industries can now qualify for the R&D tax credit than ever before and the credit can be claimed for multiple open tax years. The following are examples of industries that qualify:
Engineering:Architecture, Defense Contracting, Engineering (All Disciplines), Telecommunications, and Aerospace.
Software:IT/Software Development, Startups, Website Advertising and Marketing, and Internet Applications.Manufacturing and Design:Apparel & Textiles, Brewing, Distillery, Winemaking, Consumer Food and Beverage, Foundry/Metals/Mining, Manufacturing, Oil and Gas, and Semiconductors.Environmental & Life Sciences:Agriculture/Farming, Life Sciences, Medical Devices, Pharmaceutical, Waste Management, and Recycling.
Maintains Companies Competitive in the Globalized Economy
Almost all states offer the R&D tax incentive to supplement the Federal Research & Development Tax Credit. Companies of any size can take advantage of the credit and claim upwards of $10 billion per year in R&D Tax Credits, making it one of the largest tax credits available. This tax incentive allows national companies to constantly produce innovative technology allowing the US to remain competitive in the globalized economy we currently live in. Recently, bipartisan legislation has been introduced to expand and intensify the incentive even more for future years and many believe they are close to making it permanent. Countries like the UK, Canada, and Brazil have incredible percentages and the US sees the need to mirror.
Almost all states offer the R&D tax incentive to supplement the Federal Research & Development Tax Credit. Companies of any size can take advantage of the credit and claim upwards of $10 billion per year in R&D Tax Credits
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