What Is the R&D Tax Credit?
The R&D tax credit is available to companies developing new or improved business components. It’s available at the federal and state level, with over 35 states offering a credit to offset state tax liability. The R&D tax credit is calculated as a percentage of the company’s expenses related to R&D activities. Qualified R&D expenditures can include operating expenses such as wages, materials, and payments to third-party contractors if the activity that gives rise to the expenditure is a qualified research activity. So, while these expenses are generally fully deductible when determining taxable income, what many companies do not realize is that they can also count toward the R&D credit.
Qualifying R&D Activities
Activities that give rise to qualified research expenditures for purposes of the Sec. 41 R&D credit can include such activities as:
Developing a new or improved product
Developing new technology
Creating a new production process
Improving current processes
Developing or improving software
Developing prototypes or models
The R&D Process
It’s that simple!
Don’t overlook the R&D Credit
Any business that is currently improving or creating new or improved products, processes, or technology can potentially take advantage of the R&D credit — one of the most beneficial federal tax credits currently offered. The R&D tax credit is both a federal and state incentive, with roughly 70% of states offering it. Call us at 212-635-9500 to talk to an R&D tax specialist today.