Corporate Tax Incentives

Research & Development

The Research and Development (R&D) Tax Credits can provide a dollar for dollar reduction of your tax liability. Essentially, these credits provide a revenue source for your business without selling additional products or providing any extra services.

R&D Tax Credits are government sponsored programs intended to stimulate research and development industries of various sizes and types. Although billions of dollars of R&D Credits are claimed each year, many businesses who qualify for the benefit do not take advantage of the program because they are unaware they qualify. You don’t have to be a high tech company, to qualify. Any business can qualify if they conduct activities such as development, process improvement and product improvement (software included). We find that most businesses spend significant time increasing their productivity and much of this effort can be classified as “process improvement” which is a potentially qualifying activity.

What Qualifies as R&D?

If your company is conducting any type of activity that may be considered research and development then you should discuss them with CTI to determine whether they can qualify for the R&D Tax Credit. Below we have provided a few areas for you to consider as part of your review.

Qualifying Activities (Examples)

• Developing and modifying research methods, formulations  or products
• Significant modifications  or redesign or existing products, processes  or systems
• Testing new materials and concepts
• Develops, design and improves current processes
• Researching product and materials alternatives
• Develops internal software solutions
• Designing and evaluation of product alternatives
• Developing/designing a new product
• Develops or applies for patents
• Designing, constructing, and testing preproduction prototypes and models
• Develops, design, implements new system or software
• Using outside contractors to conduct any research and development activities

The Opportunity

Federal and State Benefits

In addition to generating credits at the federal level, many states offer similar programs that will allow companies to generate income tax credits (or other benefits) at the state level.

Unused Credits.

Credits not used during the current year are allowed a 20-year carryover period. Therefore, any credits unable to be used in the current period will carry over to subsequent years for possible use.

Financial Reporting Impact.

Since any unused credits are allowed to be carried over and used in future years, they may be allowed to be reported as a deferred tax asset on your financial statements.

Tax Refund.

A company can claim the R&D Tax Credit for all open tax years. Generally there is a 3 year statute of limitation period for federal purposes but please note that certain circumstances can extend the period or the ability for you to claim the benefit from a longer period of time. At the state level, you will see a 3 or 4 year statute of limitation. By conducting a detailed study and calculating the R&D Tax Credit, a company has the ability to file amended returns/claim for refund for federal and/or state purposes.