Smart CEOs, CFOs, VPs Tax Reducing Tax Liability With R&D Tax Credits Encouraged By The IRS And States

IRS, R&D Tax Credits, TaxConnections

One of the biggest reasons to file for R&D Tax Credits is to reduce your tax liability. The IRS and the States encourage research and development and this is why you want to take the opportunity to use them. There are extraordinary opportunities for corporate CEOs, CFOs and Senior Management Executives who file claims for R&D Tax Credits.

One R&D Tax Credit opportunity is unclaimed credit from prior years’ tax filings. Another benefit is if you are unable to use the tax credit this year you can carry it back one year or carry it forward twenty years. The R&D Tax Credit should be part of your company’s tax planning and tax savings initiatives. Here is what the IRS says about R&D Tax Credits.

Research And Development – Manufacturing Tax Tips

The expenditures of research and development (“R&D”) are generally capital expenses. However, you can choose to deduct these expenditures as current business expenses.

You may use one of the two following methods of accounting for R&D expenditures:

  • You may deduct your R&D expenditures in the tax year, in which you paid or incurred,
    or
  • You may amortize such expenditures over a period of not less than 60 months

You must charge to a capital account any R&D expenditures that you do not deduct currently, nor defer and amortize.

You may claim the R&D credit against tax for certain qualified R&D expenditures, and combine the credit as one of the components of the general business credit. The R&D credit is a nonrefundable tax credit.

Current Year Deduction Of Research & Development Expenditures

The expenditures of Research and Development (“R&D”) are reasonable costs you incur in your trade or business for activities intended to provide information to help eliminate uncertainty about the development or improvement of a product. Uncertainty exists if the information available to you does not establish how to develop or improve a product or the appropriate design of a product.

Whether expenditures qualify as R&D expenditures depends on the nature of the activity to which the expenditures relate. Neither the nature of the product (or improvement) being developed, nor the level of technological advancement matters when making this determination.

R&D expenditures generally include all expenditures incident to the development or improvement of a product. R&D expenditures include the expenditures of obtaining a patent, such as attorney’s fees expended in making and perfecting a patent application.

Product

The term “product” includes any the following:

  • Formula
  • Invention
  • Patent
  • Pilot Model
  • Process
  • Technique
  • Similar Property

Expenditures Not Included

R&D expenditures do not include expenditures for any of the following:

  • Quality control testing
  • Advertising or promotions
  • Consumer surveys
  • Efficiency surveys
  • Management studies
  • Research in connection with literary, historical, or similar projects
  • The acquisition of another’s patent, model, production, or process

When And How To Choose

Generally, you can only make the choice to deduct R&D expenditures in the first year you incur such expenditures.

You choose to deduct R&D expenditures, rather than capitalizing them, by deducting them on your tax return for the year you first have R&D expenditures.

If you fail to choose the method for the first taxable year in which you incur such expenditures, you cannot do so in the subsequent taxable years unless you obtain the consent of the Commissioner.

https://www.irs.gov/businesses/small-businesses-self-employed/current-year-deduction-of-research-development-expenditures

 

 

TaxConnections posts content from the IRS to educate our readers on Federal Tax Rules and Regulations and important updates.

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