Why R&D Tax Credits are Beneficial
The Research and Development Tax Credit or the R&D Tax Credit was made by congress in the year 1981 as a part of the Economic Recovery Tax Act that helps companies in staying competitive in the international market. This kind of credit was made permanent officially in January 1, 2016. However, there are only few small to mid-sized companies that are taking its full advantage because of the misrepresentation of it on credit laws and also because of the lack of information.
Below are some of the reasons why getting R&D Tax Credit is beneficial:
Helps Increase the Bottom Line
The R&D Tax Credit could help reduce the federal and state tax 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 will be saved and will likewise be invested to a new R&D project that is able to help on generating cash flow as well as help the company to grow for their future operations. Such kind of tax credit in fact is an offset against tax liabilities and this could 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. All of such components will then produce a consistent innovation that is needed in order to remain competitive, which is why the IRS would want to give your company ROI.
IRS in fact had broadened the definition of R&D. Qualified Research Activity (QRA) actually consist any form of activity which is part of the IRS Four Part Test. Such test will need a new or an improved business component to where it must be technological in nature, eliminate on uncertainty and process experimentation.
Helps Maintain Competitiveness
There are actually a lot of states nowadays who are offering R&D tax incentive for supplementing Federal Research & Development Tax Credit. Any company could take advantage of such credit and be able to claim upwards in R&D Tax Credits, which makes it one of the biggest tax credits that are available. Such incentive will allow companies to produce innovative technology that allows the country to remain competitive in the globalized economy.