Federal and state tax credits are available to a host of industries for activities that are deemed pertinent to research and development (R&D). Contrary to a common misperception, R&D tax credits are not limited to scientists, medical researchers and others wearing white lab coats. The permanent extension of the R&D credit in 2015 is a great wake-up call for companies with eligible activities to sit up and take notice of their eligibility to apply for the tax credits.
R&D tax credits represent a significant financial advantage to businesses, allowing both reduced tax liability and cash back for reinvestment or other needs. Companies of all sizes qualify for the federal R&D tax credit and can benefit significantly. Additionally, 70% of states now offer specific state research and development tax credits. While more than 14,000 U.S. companies claim federal R&D credits annually, less than 33% of companies that qualify for the credits actually apply for them.
Tax Point Advisors, a team of engineers, CPAs and tax attorneys, focuses on helping CPAs and their clients successfully apply for federal and state tax credits, as well as other specialty tax services. With a growing number of offices across the country, we offer CPAs and their clients national expertise with a local touch. Our professionals conduct a thorough on-site R&D review process for every tax credit study. Tax Point Advisors' audit rate is under 5% and our industry-leading audit success is unmatched.
Read on for more information about the R&D tax credit. To learn more about the benefits of R&D tax credit services from Tax Point Advisors, simply fill out the form on this page and a member of our team will be in touch with you. Or, you may call us at 800.260-4138.
What is the R&D Tax Credit?
Federal research and development (R&D) tax credits can deliver an immediate and significant benefit to a company as a result of innovative activities. While the tax credit originally pertained to basic research expenses, such as those occurring in a laboratory setting, subsequent modifications have simplified the credit and made it available to a wider variety of businesses. Hundreds of activities now qualify for this powerful tax savings tool.
R&D tax credits can immediately benefit a company in several ways:
To learn more about the benefits of R&D credits, read our success stories.
Which Industries Qualify for the R&D Tax Credit?
Only one out of every 20 eligible businesses takes advantage of the R&D credit. That’s because they don’t realize that their industry is ripe with eligible activities. Originally created in 1981 to create jobs and spur technology in the U.S., the R&D tax credit was modified over the years to apply to a host of businesses in industries including manufacturing, construction, engineering and software development. See Industries We Serve.
Which States Offer R&D Tax Credits?
Today, about 40 states offer their own version of R&D tax credits, many of which are modeled after the federal R&D credit program. Each state is different, so it is important to check your state government’s website page.
Following is a sample list of states with R&D tax credits. Please click on the link for access to specific information about each state’s tax credits and rules for eligibility.
When Does the R&D Tax Credit Expire?
With the enactment of the Protecting Americans from Tax Hikes (PATH) Act of 2015, federal R&D tax credits became permanent. In the past, Congress would extend the R&D credit for another year or two.
A business can take the credit for all open tax years—generally the last three or four years plus the current year. R&D tax credits may carry forward 20 years.
Do Your Activities Qualify?
A simple four-part test helps to determine qualified R&D activity. Dozens of industries qualify, from job shops, manufacturing and software to engineering, telecommunications and more. Watch this video for an explanation of the four-part test:
How Do You Calculate the R&D Tax Credit?
An R&D tax credit survey from a professional R&D tax expert will help you determine which activities qualify, as well as guide you through the documentation needed for eligibility. The calculation of R&D tax credits is determined based on the specific industry and qualifying activities. See Tax Point Advisors’ success stories for examples of the amount of tax credits available to companies in the engineering, manufacturing, contractor, construction, architecture and software development industries.
How Do You Claim the R&D Tax Credit?
Again, a qualified R&D tax credit professional can help you claim all of the R&D tax credits for which you are eligible through a tax credit study. Federal and state filing requirements vary, so be sure to work with your tax credit expert on supplying the required documentation to each government entity.
Are Federal R&D Credits Transferrable?
Unlike the federal R&D tax credit program, some states do offer taxpayers the ability to sell or transfer the credits. Check with your R&D tax credit professional to determine the ability to transfer credits in states offering an R&D credit program.
To learn more about the benefits of R&D tax credits from Tax Point Advisors, simply fill out the form on this page and a member of our team will be in touch with you. Or, you may call us at 800.260.4138 nationwide.