Your R&D Tax Credit Future: Fund Innovation And Increase Tax Savings

Written by Frances Kim. Updated Jul 2, 2015.

ThinkstockPhotos-462481969As one of the most valuable tax solutions, research and development tax credits provide a dollar-for-dollar reduction in tax liability. Businesses are able to hire more engineers, scientists and software developers with the tax savings they gain from this credit. Additionally, the credit allows companies to buy more supplies and materials.

By conducting research and claiming R&D tax credits, your business places itself ahead of the competition. The development of new products, processes and technology is an investment in your company’s future success. At the same time, your innovations cost you significantly less in expenses through the R&D credit program.

Qualified Research Activities

Most companies that manufacture products in the United States conduct qualified research activities that may be offset by R&D credits. Of the more than $10.8 billion in research and development credits claimed in 2012, nearly $6.6 billion went towards manufacturers.

If your business has invested time and resources in research activities, you may qualify to claim the R&D credit. Creating or improving a product, formula, process, invention, technique or software application is usually considered an eligible expense. The following activities are examples of research that qualifies your business to claim the R&D credit:

  • Testing new materials and concepts
  • Researching product and material alternatives
  • Developing new manufacturing processes
  • Participating in technical meetings
  • Purchasing and maintaining laboratory equipment

Making The R&D Tax Credit Permanent

Research and development tax credits have worked well in recent years to encourage businesses to pursue research activities. Studies show that a 10% decrease in the price of R&D activities leads to a more than 10% increase in R&D spending.

Due to the success of the R&D credit, the U.S. House of Representatives endorsed a bill in May 2015 to make the credit permanent. Currently, the R&D credit program must be renewed in order to ensure funding.

In the past, the R&D credit was allowed to lapse and was not put into place retroactively. Businesses did not receive tax credits they expected to earn for research spending between June 1995 and June 1996, for example. This loss of tax savings negatively impacted many businesses’ budgets. Fortunately, the R&D credit has been renewed or applied retroactively since 1996.

The bill proposing to make the R&D credit permanent will soon be considered by the Senate and may eventually be signed into law. President Barack Obama says he is willing to sign the bill if provisions are made to finance the costs over a 10-year period.

Consult A Tax Expert

The pursuit of research and development tax credits significantly improves your budget when you work with tax experts knowledgeable in R&D tax rules. Your tax consultant is aware of when the R&D credit must be renewed and is experienced in submitting the proper documentation according to IRS timelines.

Receive guidance as you fund your business’s future through the R&D credit by speaking with a tax expert. A tax expert at CTI is available to answer your questions about claiming this valuable credit and implementing other tax solutions.

Ready to learn more about claiming research and development tax credits? Discover tips from tax experts on how to make R&D credits work for your business.

Tax Incentives 101: The major Deductions You're Missing

 

Topics: R&D Tax Credit

Frances Kim

Written by Frances Kim

As one of the first CTI employees, Frances has held many key positions and has played an integral role in our diversification process. With more than 10 years in customer service and management, Frances’ proven adaptability has enabled her to manage projects for clients ranging from small start-ups to Fortune 500 companies.