Could the R&D Tax Credit be a Game Changer for Your Business?
Indeed, the acceleration of change today is unprecedented. It creates new opportunities for those who embrace it, and threatens obsolescence for those who don’t. Accordingly, in today’s business environment there is an increased pressure on creating new customers, new products, and new services to drive revenue growth and profits.
Undeniably, innovation and disruption are the most powerful drivers of multi-factor productivity growth within a company. Moreover, unless your company has been making the exact same product the exact same way for the past five years, you could be missing out on lucrative tax benefits.
In particular, the Research and Development (R&D) tax credit provides an estimated $10 billion in annual tax savings for U.S. companies; however the credit remains under-claimed by the majority of qualifying businesses. In fact, the Wall Street Journal estimates that a mere 5 percent of qualifying companies claim the credit. Bearing in mind the broad application of the credit and recent changes to the eligibility criteria, the R&D tax credit could be a huge game changer for companies.
To elaborate, in December 2014 the federal Research and Development (R&D) Tax Credit was made permanent after years of last-minute, deadline-driven extensions. In addition, the R&D Tax Credit will be greatly expanded to benefit companies that were effectively obstructed from eligibility in the past. Start-ups and other small businesses should take distinctive note of major changes specifically intended for their advantage. Now, start-ups (businesses with gross receipts of less than $5 million a year) will be able to take the credit, capped at $250,000 against their 2017 payroll taxes.
In addition to the direct start-up provision, starting in 2016, small businesses (businesses with less than $50 million in gross receipts) will now permanently be able to claim the R&D credit against their Alternative Minimum Tax (AMT). The removal of the AMT barrier may see a tenfold upsurge in the number of small businesses that can utilize the R&D Tax Credit. Combined, these two alterations will benefit start-ups and small businesses with approximately $2 billion in added tax savings.
It is important to note that the eligibility for the credit is much vaster than assumed and the credit’s definition of “R&D” is more expansive than just white coat research taking place in a lab. In effect, if you are making a product or process faster, cheaper, greener or more efficient — counting nearly all software and technology development done in the U.S. — then you may qualify.
Thus, considering the modifications outlined above, the R&D Tax Credit could be a massive game changer for innovative businesses of all sizes. Since the credit is now permanent, business owners can confidently include the credit as part of their annual tax planning. Ultimately, tax savings can hugely benefit businesses by injecting money back into the company. Contact Swanson Reed today if you would like to know more about how the R&D Tax Credit works and if you’re eligible.