Research and Development Tax Credit - R&D Tax Credit
The R&D Tax Credit is a tax incentive serving as an economic stimulus for keeping innovation in the U.S. while encouraging job creation. It is a permanent federal tax credit, honored by many states as well, that evaluates qualified research activities and expenses in order to calculate the dollar-for-dollar tax offset. Many innovative companies do not realize that qualifying doesn’t always require something new to the industry; the product or process must simply be new to the taxpayer. All major industries and companies of all sizes can claim the credit including manufacturing, professional, scientific, technical services, and information sectors to name a few. It remains one of the most significant tax tools under current law for maximizing a company’s cash flow and can be significant if pursued properly.
PATH Act of 2015: Enhancements to the R&D Tax Credit beginning in 2016
In addition to making the R&D Tax Credit retroactive for 2015 and permanent for the first time, this legislation includes significant enhancements to the credit beginning in 2016.
- Companies with less than $50 million in gross receipts will be able to use the credit to reduce Alternative Minimum Tax (AMT).
- Start-up companies (companies with less than $5 million of gross receipts per year) will be able to use the credit to offset federal payroll taxes (up to $250,000 per year) for up to five years.
These provisions are very meaningful to business owners of companies qualifying for the credit going forward.
No one can afford to leave money on the table. Nevertheless, when it comes to the Research and Development Tax Credit, cash is left untouched all the time. Despite the fact that the R&D Tax Credit has been available since 1981, less than a third of eligible companies recognize that they qualify for the credit. Even if companies claim an R&D tax credit, they frequently do not claim the entire credit to which they are entitled, either because they do not understand what qualifies or do not have the processes in place to properly document the credit.
The Research and Development tax credit is one of the most significant domestic tax credits remaining under current tax law – a substantial tool for maximizing a company’s cash flow and bottom line.
R&D Tax Incentives available by State
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Without competing for your accounting work, we can help you and your clients identify and capture the R&D tax credit and increase cash flow for all involved. Credits for qualified activities are available in addition to deductions. The credit is a dollar-for-dollar cash offset against your taxes and can be significant if properly pursued.
You don’t have to be a manufacturer to claim the Research Tax Credit. Companies of all sizes in a wide range of industries throughout the United States have used the R&D tax credit.