Is The Research and Development (R&D) Tax Credit Worth The Hassle?

In a world where technology reigns supreme, more people than ever could qualify for the research and development tax credit. Under section 41 of the Internal Revenue Code, companies that work in the world of technology, have a qualified purpose, engage in elimination of uncertainty, and utilize experimentation, may be eligible for the R&D tax credit. With the recent broadening of the qualifying parameters most technology, engineering and architecture companies can take advantage of this credit. Unfortunately, some companies think that the R&D tax credit is more work to claim than it's worth. In reality, that could not be further from the truth.

One of the biggest benefits of the R&D tax credit is that it can reduce federal, and some states', taxable income. This means that companies receive a dollar-for-dollar tax credit and still get to deduct expenses related to research and development, which can total a 10 to 15 percent return on investment. This credit is especially helpful for start-up companies and small businesses, because it allows them to stay competitive in our ever-growing economy.

The best part of the R&D tax credit is the ability to utilize the credit for all open tax years, meaning the last three years, plus the current year. Additionally, the company can carry forward the credit for 20 years, making the credit beneficial year after year, which aides in improving cash flow and earning power in the coming years.

In summary, the R&D tax credit can

  • save your company hundreds of thousands of dollars each year;
  • help you save on your taxes, with a dollar-for-dollar reduction in tax liability;
  • increase cash flow by allowing you to reinvest more in your business;
  • be applied flexibly, so you can use it when your company needs it the most.

This certainly makes the R&D tax credit "worth it" to claim. To take advantage of this credit and learn more about how it can help your business, contact us today.

About author
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Jasmine Inge
As a tax associate at PriceKubecka, Jasmine is studying for her CPA license and actively takes on challenges to be the best resource for her clients. Her passion is ensuring every client that qualifies to take the research and development tax credit does. She also works on corporate tax returns, franchise tax, property tax renditions, client relations, and has developed and manages PK’s personal marketing tracking system. A proud alumna of the University of North Texas, Jasmine was heavy involved in the UNT chapter of the National Association of Black Accountants and continues to work with mentoring organizations in the DFW metroplex.

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The research and development credit of IRC § 41 can be a significant advantage for businesses that develop, design or improve products, techniques, software and similar activities. It can be calculated under either the regular research credit (RRC) method or the alternative simplified credit (ASC) method.

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