Research & Development Tax Credit
What is the R&D Tax Credit?
The R&D Tax Credit (26 U.S. Code §41), also known as the Research and Experimentation (R&E) tax credit, is a federal benefit that provides companies dollar-for-dollar cash savings for performing activities related to the development, design, or improvement of products, processes, formulas, or software.
This credit provides much needed cash to hire additional employees, increase R&D, expand facilities, and more. The credit was enacted in 1981 to stimulate innovation and encourage investment in development in the US. Since then, many states have also passed the R&D Tax Credit. As such, this benefit is available across a wide variety of industries.
What are the Potential Benefits of the R&D Tax Credit?
There are several benefits to realizing the R&D tax credit. These benefits can include the following:
- Create a dollar-for-dollar reduction in your federal and state income tax liability
- Reduce your effective tax rate
- Improve cash flow
- Carry forward the credit up to 20 years
- Perform look back studies to recognize unclaimed credits for open tax years (generally 3 or 4 years)
- Utilize the federal R&D tax credit against payroll tax (applicable to certain companies)
How do I know if I qualify for a R&D Credit?
R&D doesn’t have to be all complex science. In fact, it is the opposite! One of the most commonly misinterpreted tax credits is the R&D credit. Most people believe that in order for a company to qualify for the credit, they must work on the cutting edge of technology – but this couldn’t be further from the truth.
Companies qualify for this credit if they are engaged in activities relating to any of the following:
- developing or refining a product or software
- testing a product or software
- improving processes on product
- technical designs
- documenting results of tests
- setting up more efficient & environmentally friendly designs
- compiling research data
Dosh Funding can help you get the tax credit that you deserve. If you are interested in learning more about the R&D Tax Credit, call Dosh Funding at 718-500-DOSH.