Top 5 Benefits of Research and Development Tax Credit
Is your business eligible for the research and development tax credit?
The R&D tax credit is a general business tax credit that was created to incentivize businesses to perform qualified research in the US. It was formed as a part of the Economic Recovery Tax Act of 1981 to provide an economic stimulus for businesses to contribute to research and development initiatives that would encourage investment in the US and thus build a stronger US economy.
The credit falls under section 41 of the Internal Revenue Code, allowing companies that incur research and development costs to receive a credit on their tax returns. If your industry or businesses performs work that is technological in nature, has a permitted purpose, participates in elimination of uncertainty, and follows a process of experimentation, it may be eligible for a tax credit that forms 6% of the total qualified research expenses (QRE) in the first three years.
What are the benefits of the R&D tax credit?
1) The Startup Business Benefit
The R&D tax credit is specifically designed to help all businesses finance research and development initiatives, and that means clear benefits for small and startup businesses who may not otherwise have the finances to invest in research and development. Startup companies with annual gross receipts under $5 million can apply up to $250,000 of the R&D credit against payroll liability, and that can help smaller companies invest in the research and innovation that will carry them forward in the global economy.
2) Increase Your Bottom Line
Not only can the R&D tax credit reduce your company’s federal and state tax liabilities, but it can also become an asset in itself by helping to increase the company’s market value. Money saved as a result of the tax credit can be carried forward and reinvested in further R&D initiatives, and that can further generate company growth and cash flow.
3) Motivate Innovation
Providing a credit for technological research and development can help you turn your business into a more innovative, forward moving business. Not only can that help your company to improve its products, processes, technology, and software, but that, in turn, can also help your business become more efficient, generate higher company profits, and become a stronger presence in the US economy.
4) Maintain Competitiveness
A tax incentive that rewards innovation can help a business become more efficient and gain the technological advancements that will help it become a stronger presence in an increasingly global marketplace. Research and technology developments can improve a company’s ability to compete with other industries, making it much more likely to succeed in a competitive market and thus enabling the US to better compete in the global economy.
5) The R&D Tax Credit Makes Investing in Research and Development Worthwhile
The R&D tax credit is available in almost all US states, and, regardless of size, companies that invest in research and development and are eligible for the credit can claim as much as $10 billion per year. It’s one of the largest tax credits available, making it one of the best investments businesses of all sizes can make.
