Research & Development Tax Credits
R&D Tax Credits offer a significant tax advantage, but are not often utilized by businesses simply because they either didn’t understand them, or mistakenly believed that they were ineligible.
The R&D Tax Credit is a dollar for dollar reduction of a taxpayer’s federal income taxes. It can also reduce state taxes depending on whether or not a particular state’s laws allow taxpayers to take advantage of the credit. Many states do but the computation usually varies from state to state.
The credit is meant to encourage businesses located in the United States to keep jobs in the states. It is also meant to encourage research and development.
Who Qualifies for the R&D Credit?
Many businesses are surprised to learn that this credit is intended for both formal R&D programs carried out in a laboratory as well as for experimental development work that can occur on the shop floor. In particular, the credit can be earned during the technical struggles leading up to shipment of a new or improved product, or before a new process becomes commercially viable.
The R&D Tax Credit is intended for all technically aggressive firms, regardless of product. R&D credits can be obtained by industries other than those generally considered “High Tech”. The belief that a business needs to be high-tech in order to reap the benefits of the R&D Credit can cost taxpayers many thousands of tax dollars.