What is the Research And Development Tax Credit?
The R&D tax credit, also known as the Research and Development tax credit, was created as a way to incentivize U.S. based research and development activity. The Protecting Americans from Tax Hikes (PATH) Act in 2015 made this a permanent tax credit and extended the benefits to startup companies. The credit enables businesses of all sizes to reduce their federal income tax for qualified research expenses. These expenses must be for qualified research activities.
What Is The Benefit Of R&D Tax Credit?
Claiming the R&D tax credit can potentially result in significant cost savings. The benefits include:
- Increasing Cash Flow
- Federal and State Dollar-for-Dollar Income Tax Reduction
- Claim Credits for Open Tax Years Going Back 3-4 Years
- Reducing Your Tax Rate
How To Claim The R&D Tax Credit
A taxpayer can claim an R&D tax credit, on their timely filed tax return including extensions for a given year and a taxpayer can amend prior returns to claim the credit. For amended tax returns, this can typically be claimed for the previous 3 years.
The credit is claimed by filing IRS Form 6765, Credit for Increasing Research Activities (for the year in which the qualified expenses were paid or incurred).
- Aerospace
- Architecture & Engineering
- Blockchain Development
- Chemical
- Construction/MEP
- Consumer Products
- Contract Manufacturing
- Financial Services
- Food & Beverage
- Game Development
- Manufacturing
- Metal Fabrication
- Mortgage & Banking
- Oil and Gas
- Pharma
- Plastics/Injection Molding
- Software Development
- Tool & Die
Qualifying Expenditures For The Tax Credit
- Salary & Wages
- Supply Costs
- Computer Rental or Lease
- Contract Research
Examples Of Qualified Research Activities
Qualified Research Activities include but are not limited to the following:
- Design and development of new or improved software applications
- Development of conceptual designs and defining requirements and specifications for new or improved products
- Development of tooling, fixtures, and dies
- Building and testing prototypes
- Development of production processes and equipment
- Evaluation and testing of new materials for product development
Alternative Minimum Tax Liability
The Protecting Americans from Tax Hikes (PATH) Act of 2015 included provisions that allow small and mid-sized taxpayers to offset their Alternative Minimum Tax (AMT) liability with the R&D tax credit for taxable years beginning on or after Jan 1, 2016.
Previously, qualified companies could be limited by AMT and unable to utilize 100% of the R&D tax credit. Instead, any excess credits had to be carried back and then forward. However, the PATH Act makes it possible for small businesses to offset their Alternative Minimum Tax through the R&D tax credit. So for tax years beginning after December 31, 2015, there is no limitation.
Find out how you can increase your cash flow utilizing R&D Tax Credits?
Request information from Eric Larson or reach out through this link:
https://sourceadvisors.com/source-advisors-tax-connections-featured-offerings/
