Michigan’s New R&D Tax Credit: A Catalyst for Innovation and Economic Growth
In a strategic move to bolster innovation and stimulate economic growth, Michigan has introduced a Research and Development (R&D) Tax Credit, effective from January 1, 2025. This initiative is designed to incentivize businesses to invest in research and development within the state, offering substantial financial benefits to both small and large enterprises.
Key Features of the R&D Tax Credit:
- Refundable Credit: One of the most significant advantages of this tax credit is its refundable nature. This means that even if a company has no tax liability, it can still receive a cash refund for qualified research expenses incurred in Michigan. This feature is particularly beneficial for startups and small businesses that may not yet be profitable but are investing heavily in R&D.
sbam.org - Tiered Benefits Based on Company Size: The tax credit is structured to provide varying benefits based on the size of the business:
- For businesses with fewer than 250 employees: Eligible for a 15% credit on qualified research expenses, capped annually at $250,000.
- For businesses with 250 or more employees: Eligible for a 10% credit, with an annual cap of $2 million.
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- Incentives for Collaboration with Research Universities: To foster partnerships between industry and academia, the tax credit offers an additional 5% credit, capped at $200,000 annually, for businesses that collaborate with Michigan’s research universities. This encourages companies to leverage academic expertise and resources, potentially leading to groundbreaking innovations.
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Establishment of the Michigan Innovation Fund:
Complementing the R&D Tax Credit, Michigan has also launched the Michigan Innovation Fund, a $60 million program aimed at supporting startups and early-stage businesses. The fund provides grants to empower new businesses in their formative stages, with a particular focus on communities that have been historically underserved. This initiative is expected to lead to long-term growth in areas that have previously lacked access to early-stage capital.
Implications for Michigan’s Economic Future:
These initiatives signal Michigan’s commitment to fostering a robust innovation ecosystem. By reducing the financial burden of R&D and providing early-stage capital, the state is creating an environment where businesses can thrive. This approach is anticipated to attract new companies, retain existing ones, and ultimately drive economic growth, solidifying Michigan’s position as a hub for innovation.
In conclusion, Michigan’s new R&D Tax Credit and the Michigan Innovation Fund represent significant steps toward enhancing the state’s economic landscape. Businesses operating in Michigan should explore these opportunities to maximize their potential for growth and innovation.
Are you developing new technology for an existing application? Did you know your development work could be eligible for the R&D Tax Credit and you can receive up to 14% back on your expenses? Even if your development isn’t successful your work may still qualify for R&D credits (i.e. you don’t need to have a patent to qualify). To find out more, please contact a Swanson Reed R&D Specialist today or check out our free online eligibility test.
Who We Are:
Swanson Reed is one of the U.S.’ largest Specialist R&D tax advisory firms. We manage all facets of the R&D tax credit program, from claim preparation and audit compliance to claim disputes.
Swanson Reed regularly hosts free webinars and provides free IRS CE and CPE credits for CPAs. For more information please visit us at www.swansonreed.com/webinars or contact your usual Swanson Reed representative.
