The US Research & Development Tax Credit was introduced in 1981 to encourage companies to invest into innovation and hiring within the United States. This credit benefits companies of all sizes in over 40 industries, whether they are profiting or losing money.
Every year, thousands of companies claim more than $10 billion in federal R&D tax credits. A significant percentage of those taking advantage of this benefit are small to medium-size companies. At the end of 2015, there were changes made to the R&D credit that made it even more powerful; like making the credit program permanent.
What are my qualified expenses?
- W2 wages for US-based employees involved in R&D activity
- Supplies and materials used in R&D activity
- Fees paid to US-based sub-contractors
Do I qualify for credits?
Your business can qualify for a credit regardless of its size, as long as you are involved in qualified activities such as:
- Developing processes, patents, formulas, techniques, prototypes, or software
- Improving or redesigning existing products
- Hiring scientists, designers, or engineers
- Devoting time and resources to creating (manufacturing or developing)
new or innovative products
- Developing patents, in other words, intellectual property
How can I use my credits?
- Reduce your Federal and/or State tax liability (in past years as well).
- Reduce your FICA payroll tax liability up to $250,000/ year. Company must be under 5 years old, as well as pre-revenue OR have less than $5 million in gross receipts for the tax year.
- Apply against Alternative Minimum Tax (AMT) beginning January 1, 2016.
- Federal credits carry forward for up to 20 years.
- State credits carry forward in most states (eligibility and carry-forward lengths vary).
Contact Pinnacle Consultants for a free consultation to see if you qualify!