Federal Research and Development (R&D) Credit
Activities companies undertake to create new or improve existing products and services to stay ahead of competitors are potentially eligible for the federal Research and Development (“R&D”) tax credit. Almost anyone making or improving a product, process, or service may be engaging in eligible R&D activities.
The R&D credit, enacted in 1981, is now of increased value to a broader universe of companies than in previous times. After years of Congress offering short-term extensions to the program, the Path Act of 2015 permanently extended the R&D credit. While large corporations historically utilize the credit, the program became more useful to small and medium-sized businesses when the Tax Cuts and Jobs Act of 2017 reformed the Alternative Minimum Tax (“AMT”). The result is the opportunity for a larger universe of companies to pursue the credit and invest funding back into their business.
The test as to whether the credit is viable to your company is simple - make something new or improve the process to an existing product or service over time. Think of the action companies take to create new or improve existing products and services to stay ahead of competitors.
Open tax years for taxes filed may yield a federal tax refund, and if a company doesn’t have a tax liability now, it may carry the credit forward for up to 20 years.
A few of the many industries that qualify include:
• Financial Services
• Food Processing
• Medical Devices
An added benefit is that close to 40 states offer similar R&D credits, and many allow recipients of the credits to “sell” if the business has a minimal or no state tax liability.