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Facts and Benefits of R&D Tax Credits

The Research and Development Tax Credit or the R&D Tax Credit was made by congress in the year 1981 as a part of the Economic Recovery Tax Act that helps companies in staying competitive in the international market. This kind of credit was made permanent officially in January 1, 2016. However, there are only few small to mid-sized companies that are taking its full advantage because of the misrepresentation of it on credit laws and also because of the lack of information.

What you will learn in this article are some reasons as to why getting an R&D Tax Credit is found to be beneficial:

Helps Increase the Bottom Line

This kind of tax credit can actually help reduce the state tax and federal liabilities of a company. Any company which is involved in the R&D can in fact get about 10 – 15% or more of the ROI for their 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. Tax credits like this is actually an offset against the tax liabilities and this also could be carried up to 20 years.

Motivating Innovation

This kind of credit is in fact made available for companies that develops, improves, process, invents, designs and many 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.

IRS Helped to Broaden R&D

The IRS in fact helped to broaden the definition of R&D. The Qualified Research Activity (QRA) have an activity which falls in the IRS Four Part Test. The test needs to be new or should be an improved business component to where it has to be technological in nature, be able to eliminate uncertainty and also on the process of experimentation.

Maintaining your Business’s Competitiveness

There are many states today that are offering R&D tax incentive in supplementing Federal Research and Development Tax Credit. Any company could take advantage of such credit and be able to claim upwards in R&D Tax Credits, which makes it one of the biggest tax credits that are available. An incentive like this will allow companies in producing innovative technology which will allow a country to remain competitive in the globalized economy we have now.

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