Continuous developments in technology over the past years have compelled companies to frequently research and innovate. But research and development is a challenging task and sometimes incur heavy expenditures.
Thankfully, the U.S. government incentivizes the entities undertaking research by providing the R&D tax credit. This tax incentive lowers some burden for the companies and encourages them to take risky initiatives.
In this blog, we’ll cover the brief history and benefits of the R&D tax credit.
How Has R&D Tax Credit Evolved Over the Years?
Here’s a brief history of the significant changes in the R&D tax credit since its development.
In 1980, the Federal R&D tax credit allowed American businesses to offer technical jobs and do innovative research. However, its scope was limited in creating or inventing a new product, known as the discovery rule.
The lawmakers eliminated the discovery rule in 2001, and the tax credit expanded its horizon to more businesses. The threshold lowered to develop something that’s ‘new’ for all the taxpayers.
In 2006, Alternative Simplified Credit (ASC) was promulgated, providing flexibility to businesses in credit amounts calculation and baseline calculation changes.
A Permanent Stake
By the end of 2015, the PATH (Protecting Americans from Tax Hike Act) declared R&D tax credit a permanent part of the U.S. tax code. It also allowed businesses with a net worth of $50 million or less to take advantage of this tax incentive.
Where Does It Stand Today?
The R&D tax credit is one of the powerful tax credits for U.S businesses today, lowering its Alternative Minimum Tax (AMT) requirements for C-corps and S-corps.
What Are Some Benefits of R&D Tax Credit for the U.S. Businesses?
Here are the top benefits of R&D tax credit:
- Increased cash flows
- Reduction in federal and income taxes
- Boost in return on investment (ROI)
- The lowered effective tax rate
- Receipt of 12-16 cents from tax incentive on every qualified dollar
Who Qualifies for R&D Tax Credit?
Here are some examples of businesses eligible for claiming the R&D tax credit.
- Developing ecological or environmental-friendly designs
- Creating or inventing new software, product, process, or formula
- Forming experimental prototypes and models
- Beta testing
- 3D modeling or CAD
- Supervising the employees engaged in R&D
- Compiling, maintaining, or documenting the research equipment and data
Looking for R&D Tax Consultants? Contact The Darson Group Today!
Does your business want to benefit from the R&D tax credit? Get in touch with The Darson Group’s expert consultants.
We have a specialized team of highly-qualified attorneys, engineers, and project managers who adhere to federal guidelines and code of conduct to ensure maximum incentives for the client.