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The R&D Tax Credit – Incentivizing Innovation

Tax Department - Lobby

By Hoffman & Associates

The Research and Development (R&D) Tax Credit is a government-sponsored tax incentive that rewards companies for conducting R&D in the United States. This credit, initially implemented back in 1981, was created to incentivize innovation throughout the economy and keep technical jobs here in the U.S.. To date, the R&D tax credit remains one of the best ways for businesses to substantially reduce their tax liability.

More companies than ever before, and from a wider range of industries, now qualify for federal and state tax savings allowing them to hire new employees, invest in new products and service lines, and grow their operations.

The credit may be claimed for both current and prior tax years, and may also be available to taxpayers who have improved upon the performance, functionality, reliability, or quality of existing products or trade processes. Qualified research does not have to be successful, but must be technological, involve uncertainty and experimentation, and create new products, processes or software.

Regardless of company size or revenue, any company performing the following activities may qualify for R&D tax credits:

  • Hiring scientists, designers, or engineers devoting time & resources to developing new products
  • Developing, improving, designing or redesigning business components such as products, processes, intellectual property or techniques
  • Evaluating alternative solutions or approaches such as modeling, simulations, systematic trial and error, or other methods

Ways the R&D tax credit can help your small business:

  • May offset the FICA portion of payroll taxes (for new businesses having no more than five years of gross receipts)
  • Reduces your federal and state taxes for the current year as well as future years, essentially lowering your business’s effective tax rate
  • Allows qualified businesses to deduct the cost of qualified research and innovation from taxable income, while also improving products and technology

For more information regarding this tax incentive or any other tax matter, please contact us at info@hoffmanestatelaw.com or call us at 404-255-7400.