Posted by Jeffrey M. Feingold on 02.19.14
Many people believe that R&D tax credits really don't help the bottom line. That's because either they don't understand what they are, or they haven't looked at the math. This misconception keeps many companies from profiting from a tax credit that could help them, because they think it isn't worth taking the time to do. Let's look closer at these credits.
The R&D tax credits were enacted in 1981 as part of a program to stimulate the economy and create jobs. Our government wanted to encourage private industry to stay tech savvy and to keep America competitive on the world market through new inventions and developments.
The R&D tax credits are not a tax deduction. They are a credit that is subtracted from the tax. They present a significant tax savings. Many companies save hundreds of thousands of dollars by using this perfectly legal tax savings. By reducing taxes in a significant way, net earnings increase significantly, too. The company's overall profit looks exceedingly better, giving a much better earning per share report.
The first and obvious thing that qualifies is in-the-laboratory research that produces a new product that gains a patent. But that is not all that qualifies. Many things qualify that you might not realize. Development costs count. If you are developing a new process or method, those expenses count. These can be design changes in the way things are done. They might be changes made on the shop floor or on a job site.
The tax credits apply to many, if not most, industries. If you can pass this four part test, you can use tax credits in your company.
If you are uncertain about the answers to the above questions, or you need more information about how to proceed, contact your CPA, tax attorney, or a company like Tax Point Advisors that specializes in R&D tax credits. We offer free consultations to determine if you qualify and give an estimate of what your savings could be. Don't be afraid to improve your bottom line with R&D Tax Credits!