Research & Development Tax Credit

The R&D tax credit is a government-sponsored economic incentive backed by Congress and the administration. The most recent regulations make it easier for a wider range of companies to qualify for the R&D credit. In addition, with the introduction of the Alternative Simplified Credit (ASC) in 2007, many companies that evaluated the credit in the past and found little benefit may now be eligible for significant credits.

The R&D credit provides a reduction to past, current and future years’ federal tax liabilities, creating an immediate source of cash. The credit differs from a deduction in that it is an actual dollar-for-dollar offset against taxes owed or paid. The credit is a source of permanent tax savings and can be claimed for all open tax years. If the credits cannot be used in a particular year, they are carried back one year and then carried forward up to 20 years. In addition to the federal credit, many states also offer R&D tax credit incentives.

While the computation of the credit can be complex, most companies receive a tax credit equal to 4-7 percent of total qualifying expenditures. Most qualifying expenditures result from the wages paid to employees that participate in qualifying activities. As a result, the potential for R&D tax credits can be substantial. If your company has been engaged in qualifying activities for the last several years, you may be eligible to retroactively claim the credit

HVTDC offers a complimentary, no-obligation analysis during the pre-engagement phase. During this initial assessment, we determine if the company engages in activities that qualify as research and development as defined by the Internal Revenue Code. After identifying qualified activities, we provide an estimate of the tax credit benefit available to the company.

Using the R&D tax credit can result in “found money” for businesses, allowing investment in further research and development or other business growth activities.