Facts and Benefits of R&D Tax Credits
In 1981, the Research & Development Tax Credit or (R&D) Tax Credit was created as a part of the Economic Recovery Tax Act, which is considered a way to aid companies to be able to stay competitive in the marketplace. Also, this kind of credit was permanently made official in January 1, 2016. But, there are only few small to mid-sized companies who actually are taking the full advantage of the R&D Tax Credit due to the misrepresentation about it on tax credit laws or simply because of the lack of information.
Through this article, you will learn on some of the reasons with why a R&D Tax Credit is really beneficial:
Helps Increase the Bottom Line
This kind of tax credit can actually help reduce the state tax and federal liabilities of a company. Any company which is involved in the R&D can in fact get about 10 – 15% or more of the ROI for their qualifying business activities. Such credits are in fact considered as assets as well because it helps to increase the market value of a company and will also strengthen it as an acquisition target. The money is then going to be saved and will be invested towards new R&D projects that helps in generating cash flow and growth for the company for any future operations. A tax credit like this is actually an offset against tax liabilities and can in fact be carried for up to 20 years.
This kind of credit is in fact made available for companies that develops, improves, process, invents, designs and many more. The companies are then rewarded for the improvements and such credit could then help in generating high paying positions as well as company profits. These components are then going to be produced on a consistent innovation which is essential to remain competitive, which in fact is why the IRS wants to give your company ROI.
IRS actually helped to broaden the definition of R&D. The Qualified Research Activity (QRA) have an activity which falls in the IRS Four Part Test. This kind of test requires a new or an improved business component where it should be technological in nature, eliminates uncertainty and the process of experimentation.
Maintains your Competitiveness
Many states today are offering R&D tax incentive to help Federal Research and Development Tax Credit. Any company would take advantage on such credit and be able to claim upwards on R&D Tax Credits, which then makes it one of the biggest tax credits that are now available. Such incentive will allow companies to produce innovative technology that allows the country to remain competitive in the globalized economy.