Federal and state tax credits are available to a host of industries for activities that are deemed pertinent to research and development (R&D).
What is the credit?
The research and experimentation tax credit, also known as the research and development (R&D) tax credit provides cash incentives for companies conducting R&D in the U.S. The credit was designed to encourage research and development in companies of all sizes, across many industries.
For thirty-five years, Congress, and many states, have encouraged technically innovative companies to take research and development tax credits. Large companies have long-established programs to take advantage of these credits. Small and mid-size companies have often failed to get their fair share.
Since 2001, the IRS has continued to issue regulations that make it easier for a broader array of companies to qualify their activities as R&D. In late 2015, Congress made the R&D credit permanent and provided two tax benefits for eligible small businesses.
What R&D Qualifies Today?
Today a company that is using some form of technology, such as engineering, to develop its products, services or manufacturing skills, is likely to qualify for R&D tax credits. Companies do not need patents or even an R&D department to qualify. In fact, the IRS continues to expand the definition of qualifying R&D. Companies are being encouraged to do their R&D in the U.S. and take these credits. Many states follow the federal R&D regulations and provide significant additional credit against state tax liability.