The Different 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. This kind of credit was made permanent officially in January 1, 2016. But, there are only about 1 out of 15 small to mid-sized firms that are taking the full advantage of the R&D Tax Credit because of the misrepresentation about it in tax credit laws or due to lack of information.
Below are some of the reasons why getting R&D Tax Credit is beneficial:
Increasing the Bottom Line of your Company
The R&D Tax Credit could help reduce the federal and state tax liabilities of a company. Any company that is involved in R&D actually could acquire about 10 – 15% or maybe more of the ROI for their qualifying business activities. The credits likewise are considered as an asset because it helps increase the market value of the company and strengthening it as an acquisition target. The money will then be saved and be invested to new R&D projects that will then generate growth and cash flow for the company for their future operations. Tax credits like this is actually an offset against the tax liabilities and this also could be carried up to 20 years.
Motivate on Innovation
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 Helped to Broaden R&D
IRS actually helped to broaden the definition of R&D. Qualified Research Activity (QRA) actually consist any form of activity which is part of the IRS Four Part Test. The test needs to be new or should be an improved business component to where it has to be technological in nature, be able to eliminate uncertainty and also on the process of experimentation.
Helps Maintain 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. Incentives such as this will actually allow companies to produce innovative technology that is going to allow a country in remaining competitive in the globalized economy of which we have today.