Don’t Hold Back Your Claim: 7 Common Myths about the R&D Tax Credit

Unfortunately, only one out of twenty small and medium sized companies who are eligible for the United States R&D tax credit take advantage of it.  However, smaller companies should not be dissuaded from filing it – particularly as the tax credit could be worth up to $10 billion annually to firms. Don’t hold back your claim this year, here are seven of the most common myths debunked:

Myth #1: The R&D tax credit is limited to companies conceiving a new invention

The R&D tax credit is intended to boost innovation and improve business processes. It is not confined to creating the latest tech products or getting a patent. The R&D tax credit also encompasses companies who are improving or modifying products or manufacturing processes, for example, making a product cleaner, quicker, greener, or cheaper. By no means does the development or improvement effort have to equate to rocket science.

Myth #2: The tax credit is only for labs or those staffed by white-coated scientists

Companies involved in basic research are understandably primary candidates for the R&D tax credit; however, the credit is also serious about enhancing applied science – resolving a customer’s issue or a production problem using acknowledged scientific principles. Problem solving on the site, in the field, on the shop floor, or even behind a computer – all may eligible for the R&D tax credit.

Myth #3: The Tax credit is reserved for large companies

The big companies, staffed with tax lawyers, are indeed all over R&D tax credit. However, the R&D credit is available for small and medium businesses too, but companies do need to take the initiative to apply to get it – the IRS isn’t simply offering out credits.

Myth #4: My company isn’t in the correct industry

Swanson Reed has assisted businesses across the globe claim the credit, including agricultural firms to engineering firms and companies involved in food processing to researching natural medicine. Self-censoring is the major barrier to companies claiming the R&D tax credit.

Myth #5: The R&D tax credit won’t help state taxes

In most cases, if your company is qualified for the federal credit, it should also benefit from the state credit. Thirty-eight states have a state R&D tax credit – and several states are looking this year to increasing their R&D tax credit or producing one. Several companies have been able to use state R&D tax credits to eradicate or considerably reduce state income taxes.

Myth #6: The R&D tax credit is too good to be true

Since its conception in 1981, the R&D tax credit has aided thousands of companies in a extensive variety of industries each year. However, the IRS isn’t handing out this tax credit; you need to correctly document your activities and properly apply the law.

Myth #7: The R&D credit will go if we have a tax reform

The R&D tax credit is supported on a bipartisan basis in both houses and by the Obama Administration. All signs are it will stay in place even with tax reform. Nonetheless, in many circumstances your business may be entitled to file an amended return and claim the credit for the preceding three years.

Have any more questions or myths you want unwrapped? Contact us today to find out if your business could claim the R&D tax credit.