22 Lessons Learned: Taxes

Facts and Benefits of R&D Tax Credits

The Research & Development Tax Credit or the R&D Tax Credit was made in 1981 as a part of the Economic Recovery Tax Act that helps companies to stay competitive in the global marketplace. This kind of credit was made permanent officially in January 1, 2016. But, there are only about 1 out of 15 small to mid-sized firms that are taking the full advantage of the R&D Tax Credit because of the misrepresentation about it in tax credit laws or due to lack of information.

Through this article, you will learn on some of the reasons with why a R&D Tax Credit is really beneficial:

Increase your Bottom Line

With this kind of tax credit, it could actually help reduce the state tax and federal liabilities of a firm. Any company that’s involved in R&D could get about 10 – 15% or more ROI for the 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 then be saved and be invested to new R&D projects that will then generate growth and cash flow for the company 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.

Motivates Innovation

This kind of credit is in fact made available for companies that develops, improves, process, invents, designs and many more. Companies like these are then rewarded for the improvements and is able to help generate high paying positions and company profits. All of such components will then produce a consistent innovation that is needed in order to remain competitive, which is why the IRS would want to give your company ROI.

IRS Broadened

The IRS in fact helped to broaden the definition of R&D. Qualified Research Activity (QRA) actually consist any form of activity which is part of the IRS Four Part Test. Such test will need a new or an improved business component to where it must be technological in nature, eliminate on uncertainty and process experimentation.

Maintains your 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. Such incentive will allow companies to produce innovative technology that allows the country to remain competitive in the globalized economy.

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