R&D Tax Credits? Do you Qualify?

1/12/2020

(By: Kevin Ham)

What is a R&D Tax Credit?
You may be surprised to find out that your business may qualify. The R&D tax credit started in 1981 to help stimulate the economy and to keep American jobs?

The federal R&D tax credit was first introduced in 1981, as a 20-year incentive, and has rewarded part of the tax code ever since. Its purpose is to reward US companies for increasing their R&D in the current tax year. Initially temporary, the federal R&D tax credit became the United States primary means for rewarding business for investment in research.

PATH Act of 2015 Changed Everything
The PATH Act (Protecting American Against Tax Hikes) of 2015, permanently extended the R&D tax credits and expanded its previous, allowing small and medium sized businesses to qualify for credits.

The credits are available to any business the attempts to develop new, improved, or technological products or processes. In addition to these activities, the credits may also be available to taxpayers that that have improved the performance, functionality, reality, or quality of existing products or trade processes.

The PATH Act allowed for 2 very important changes in the law. First, the legislation allows small businesses to take advantage of the R&D credits. Second, the path act allows startup businesses with no federal tax liabilities to take advantage of the credits.

Who Qualifies?

So, who qualifies for the credits? While initially enacted in helping large manufacturers and innovators, the PATH Act allowed for small and medium-sized businesses to qualify for credits.
Any company that designs, develops or improves products, processes, techniques, formulas, inventions or software may be eligible. In fact, if a company has invested time, money, and recourses toward the advancement and improvement of its products or processes. It may quality.

3 basic criteria to be qualified:

Creative or innovative
At least 1 W-2 employee
Must be paying taxes

The changes made by the Path Act, have allowed several new businesses to qualify. These include manufacturing, engineering, agriculture, software, importers/exporters, biotech, doctors, dentists, chiropractors, website development, and breweries.

Does your business qualify? The Small Business Development Center will host a workshop on this topic on January 22nd. For more info, visit https://sdsbdc.ecenterdirect.com/events/12653

6 Comments

Hailey Miller link

12/22/2021 01:53:02 am

Thanks for pointing out that the R&D tax credits help stimulate the economy and keep American jobs. I would imagine that any business owner would want to claim R&D tax credits when they improve their business components. I think they should look for a reliable R&D tax credit service that can provide assessment and feasibility at no cost to them.

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9/9/2022 04:19:39 am

Taxpayers who design, develop, or enhance goods, procedures, methods, formulae, or software are eligible for the R&D tax credit. It is meant to reward businesses who seek innovation with increased investment since it is assessed on the basis of growth in research activities and expenditures.

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1/28/2023 06:37:02 am

It's awesome that this article talked about employees are struggling financially during this difficult period of COVID-19, thus the timing of this government tax credit program could not be more critical. I'm glad that you explain it thoroughly and now it makes more sense. You did a great job of explaining reduce property taxes.

1/28/2023 06:40:48 am

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4/28/2023 04:35:55 am

This is a really well-written and informative piece about RD tax credits. For some reason, I never considered that companies doing R&D would be eligible for tax breaks. The author did a great job laying out the requirements for participation and illustrating them with concrete examples. The application process portion was quite useful, since it detailed each and every action I needed to do to apply for these refunds. If I were a business owner, I would investigate RD tax credits immediately. You've been a huge help by bringing attention to this crucial part of tax preparation.

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5/11/2023 09:43:16 pm

This article has been a priceless tool for me as I try to expand my business. Understanding the requirements for eligibility and potential tax savings related with R&D tax credits, which may help finance additional growth initiatives, is quite beneficial.

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