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Is the Research and Development (R&D) Tax Credit Worth the Hassle?

Jasmine Inge

In a world where technology reigns supreme, more people than ever could qualify for the research and development tax credit. Under section 41 of the Internal Revenue Code, companies that work in the world of technology, have a qualified purpose, engage in elimination of uncertainty, and utilize experimentation, may be eligible for the R&D tax credit. With the recent broadening of the qualifying parameters most technology, engineering and architecture companies can take advantage of this credit. Unfortunately, some companies think that the R&D tax credit is more work to claim than it’s worth. In reality, that could not be further from the truth.

One of the biggest benefits of the R&D tax credit is that it can reduce federal, and some states’, taxable income. This means that companies receive a dollar-for-dollar tax credit and still get to deduct expenses related to research and development, which can total a 10 to 15 percent return on investment. This credit is especially helpful for start-up companies and small businesses, because it allows them to stay competitive in our ever-growing economy.

All qualifying companies, with gross receipts under the $5 million mark, can use the tax credit, up to $250,000, to help offset tax liability. This credit could be even larger for companies that are more profitable.

The best part of the R&D tax credit is the ability to utilize the credit for all open tax years, meaning the last three years, plus the current year. Additionally, the company can carry forward the credit for 20 years, making the credit beneficial year after year, which aides in improving cash flow and earning power in the coming years.

In summary, the R&D tax credit can,

·         save your company hundreds of thousands of dollars each year;

·         help you save on your taxes, with a dollar-for-dollar reduction in tax liability;

·         increase cash flow by allowing you to reinvest more in your business;

·         be applied flexibly, so you can use it when your company needs it the most.

This certainly makes the R&D tax credit “worth it” to claim. To take advantage of this credit and learn more about how it can help your business, contact us today.