The Ultimate Guide to Accountants

By | June 20, 2018

Facts and Benefits of R&D Tax Credits

In 1981, the Research & Development Tax Credit or (R&D) Tax Credit was created as a part of the Economic Recovery Tax Act, which is considered a way to aid companies to be able to stay competitive in the marketplace. Another thing is that such credit was made official last January 1, 2016. But, there are only few small to mid-sized companies who actually are taking the full advantage of the R&D Tax Credit due to the misrepresentation about it on tax credit laws or simply because of the lack of information.

Below are some of the reasons why getting R&D Tax Credit is beneficial:

Increasing the Bottom Line of your Company

The R&D Tax Credit could help reduce the federal and state tax liabilities of a company. Any company that’s involved in R&D could get about 10 – 15% or more ROI for the qualifying business activities. Credits like these are considered also as assets because it is able to help increase the market value of a company and it likewise helps to strengthen it as an acquisition target. The money will be saved and will likewise be invested to a new R&D project that is able to help on generating cash flow as well as help the company to grow for their future operations. A tax credit like this is actually an offset against tax liabilities and can in fact be carried for up to 20 years.

Motivating Innovation

Credit like these in fact are made available to firms that process, develops, improves, invents, designs and many others more. The companies are then rewarded for the improvements and such credit could then help in generating high paying positions as well as company profits. Components like these will then be produced for a consistent innovation that is crucial to be able to remain competitive, which would be why the IRS wants to give your company an ROI.

Broadened Definition of R&D by IRS

IRS in fact had broadened the definition of R&D. The Qualified Research Activity (QRA) have an activity which falls in the IRS Four Part Test. This kind of test requires a new or an improved business component where it should be technological in nature, eliminates uncertainty and the process of experimentation.

Maintains your Competitiveness

There are many states today that are offering R&D tax incentive in supplementing Federal Research and Development Tax Credit. Any company may be able to take advantage on this kind of credit and claim upwards in R&D Tax Credits, which in fact makes it one of the biggest tax credits which are available today. Incentives such as this will actually allow companies to produce innovative technology that is going to allow a country in remaining competitive in the globalized economy of which we have today.

5 Takeaways That I Learned About Taxes

Finding Parallels Between Services and Life