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.
Since 1981, 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.