What Is the Research and Development Tax Credit?
The R&D tax credit is available to businesses developing or improving company components, such as software, products, processes, techniques, and formulas, which results in improved performance, reliability, or quality. This credit is available at the state and federal level. Over 30 states offer a credit to offset state tax liability.
Is Your Business Eligible?
Your business may be eligible for the R&D tax credit if it devotes time and resources to creating or innovating existing products or develops software. Many manufacturing companies are taking advantage of this credit but don’t let that be a limiting factor. Any taxpayer who employs designers, engineers, or scientists should look into this opportunity.
The R&D tax credit can be retroactive. You may be able to claim R&D credits for three prior open tax years, depending on when your tax return was filed. Some states allow more than three years for retrospective claims. Additionally, start-ups may be eligible to apply the R&D credit against their payroll tax for up to five years.
How Can Your Business Benefit from the R&D Tax Credit?
The R&D credit directly reduces your business’s tax liability. There is no limit on the amount of expenses and credit that can be claimed per year. If the federal R&D credit can’t be used immediately, then that unused credit can be applied to the previous year or carried forward up to 20 years. Check with your state to find out the carryover rules.
The R&D credit is a great way to give your organization an injection of extra cash.
Contact Rea & Associates today to find out how to make the R&D tax credit work for your business!
By Craig Chase (Wooster office)