The United States R&D Tax Credit is Not Competitive Globally

The federal research and development better known as, the R & D tax credit offered within the United States is not competitive when compared to many of the other industrialized countries’ R & D tax incentives.

To illustrate, the net (i.e., dollar-for-dollar) US R & D tax credit is typically about 5% to 7% of a company’s R & D spend in the US per year. Contrast that with the R & D tax credit available in Canada, Mexico, Ireland, France, Italy, and Japan which range from 30% to 50% of the R & D spend in those respective countries.

Also, China, India, the UK, and Brazil offer a bonus “super deduction” that ranges from 100% to 225% of the R&D spend in those countries each year. Further, some countries, like Canada, offer a refundable R&D tax credit in certain situations, whereas the US does not.

Technology Changing The Game For R&D Tax Credit Globally

As technology advances and the globe continues to get smaller, US-based companies have more options with regards to where they conduct their R & D activities. All of the industrialized countries compete for businesses to relocate their manufacturing and R & D there, in large part, by providing generous tax rates, exemptions and incentives. Several US-based companies have moved some, or all, of their R & D operations overseas over the past few decades as a result. For example, Google, Pfizer, Boston Scientific, Facebook, Twitter and Johnson, and Johnson are just some of the US-based companies that have significant operations in Ireland due to its generous tax rates and incentives, including its R&D tax credit.

R&D Tax Credits Incentivizes Long-Term Economic Growth

Technological innovation and manufacturing are what grew our country to what it is today. R & D is the main catalyst for innovation and innovation is what drives long-term economic growth. Our R & D tax credit is meant to incentivize these activities and investments at home and, thereby, promote job creation and prosperity in the US. Congress should be looking to increase our R & D tax credit to make it more competitive globally.

For example, it should increase the Alternative Simplified Credit (ASC) from 14% to 20%, the same as the regular R & D tax credit. This increase was proposed in the Research and Experimentation Advances Competitiveness at Home (REACH) Act of 2016 by Congressman Tiberi (R-OH) and Congressman Larson (D-CT).

Instead, as part of the recently enacted Tax Cuts and Jobs Act (TCJA), beginning in 2022, Section 174 R&D costs that are used to calculate the R & D tax credit will need to be amortized over five years instead of being afforded immediate deduction. If kept in place, this rule change will significantly dampen our already weak R&D tax incentive on the global stage, beginning in 2022.

Considering The Effect

Congress should seriously consider the effect of this rule change on future R & D investment in the US and revert to existing law which allows for the current deduction of all Section 174 costs.

In addition, Congress should embrace proposals such as the bi-partisan REACH Act, which will strengthen our R & D tax credit in this ever increasingly competitive global environment.

How Can Specialty Tax Services Help Your Business?

Are you looking for ways to help your business and gain significant tax benefits? Well, Engineered Tax Services (ETS) can help you. That’s because ETS brings specialty tax engineering services to mainstream America.

ETS offers valuable services to CPA firms to:

  • Reduce taxes for clients who own real estate
  • Create new revenue streams for the firm
  • Attract new, more desirable clients to the firm
  • Educate CPAs, property owners, and the community
  • Leverage capital investment
  • Provide community service
  • Promote energy conservation

The CPA profession as a whole recognizes that providing value-added tax services represents a significant revenue source. The national accounting firms have all created separate value-added entities structured to offer fee-based services and, until recently, have established commission-based subsidiaries. Our program offers similar capabilities.

How Does ETS Do It?

We provide engineering based specialty tax advisory services to CPA firms and their clients including:

  • Cost Segregation Reports
  • Tangible Property Regs – Capitalization vs. Deductions
  • Disposition Studies
  • Energy Tax Incentives
  • Research & Development Tax Credits

The Benefit To Property Owner Clients:

  • Tax Savings
  • Additional Cash Flow
  • Lower operating costs on rentals (and consequently increase the value of properties)
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How We Work With Clients

  • Partner with CPA firms in the way that is most comfortable and appropriate for their specific needs
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ETS is a professionally licensed engineering firm with professionally staffed engineers with disciplines in energy tax incentives, disposition studies, insurance appraisals, cost segregation studies, tangible property regulations 263(a), research & development tax credits, historical tax credits, reserve studies, and green leasing with a combined experience of 100 years in engineering related services. ETS meticulously follow IRS guidelines and goes above and beyond the standards required. Our procedures, processes, and final products set the benchmarks that others strive to reach. Please call (800) 236-6519 for more information.

Tax Law Changes for Millennials

With the new tax reform in full effect, it’s important to know how it will affect you specifically. If you are a millennial, you may not be aware of the changes and benefits that will impact you.

What You Should Know About the Tax Law As A Millennial

The most immediate impacts that tax professionals say will impact millennials are the following. These are in effect for the 2018 tax year through the 2025 tax year.

    • Your Paycheck May Increase as Millennials

      Because the tax law aims to increase U.S. gross domestic product GDP, the Tax Foundation estimates that the tax law will increase after-tax incomes for all taxpayers by 1.1%.

    • No More Personal Exemptions

      According to the tax plan, personal exemptions are going away. That means that you cannot deduct for yourself or your dependents. The increased standard deduction is meant to offset the “no more personal exemption” inclusion.

    • Reduction of Mortgage Interest Deduction

      If you are planning to buy a home from 2018 through 2025, your mortgage interest deductions will be capped lower. With the new tax law in place, the deduction limit will be applied to $750,000 of debt on your primary residence. However, if you bought a house before December 15, 2017, you can still claim the deduction using the old limit of $1 million. You should also note that the deduction for interest on home-equity loans and HELOCs goes away for 2018. Without the deduction, borrowing will now cost you more.

    • The Student Loan Interest Deduction Will Remain

    • Moving Expense and Job Search Deductions Disappear

      You can no longer be able to deduct any costs for moving or job searching.

    • State and Local Tax Incentives/Deductions Will Be Limited

      There are now limits on state and local tax deductions. The deductions for these taxes cannot exceed a total of $10,000. This is most likely to affect taxpayers living in states with high costs of living.
    • The Standard Deduction Increased

      For 2018, the standard deduction increased to $12,000 for single filers, $18,000 for the heads of households, and $24,000 for married couples filing jointly. These limits nearly double what was allowed in 2017. This means that there is less income you pay taxes on.

    • The Child Tax Credit Expanded

      The Child Tax Credit is available to families with qualifying children who fit within the income thresholds. For 2018 the credit doubled from $1,000 per child to $2,000. The tax law also raises the limit to qualify. Married couples who earn up to $400,000 can now claim the credit. The first $1,400 of the credit is now refundable under the tax code.
    • Commuters May Have to Pay

      You may have to cover your own commuting costs from now on. That’s because the tax law eliminated the deduction for companies. Your employer may still offer commuter benefits, but they will not have the incentive of a deduction.

If you have further questions about the tax law, please contact Engineered Tax Services directly at EngineeredTaxServices.com or call (800) 236-6519.