The Research and Development Tax Credit is one of the many tax provisions that companies can benefit from. As with each and every one of these tax credits, these are often some misunderstandings that result in the intended beneficiary not being able to exploit it fully. In this article, we are going to discuss some of the basic facts regarding the tax credit. Understanding the facts behind the incentive and enlisting the help of a professional tax company will help you optimize your operations accordingly.
What Is The Research And Development Tax Credit?
The incentive is a creation of the Congress. It came into being as part of the Economic Recovery Act of 1981.the benefit cannot be used to offset the Alternative minimum Tax but can offset your tax liability on a dollar for dollar basis. This incentive has enabled numerous States attract investment and create employment. A lot of companies have relocated to states offering the R & D Tax Credit and other incentives.
Companies that qualify are those that invest time, resources, and money into the development of brand new products and improving existing ones. It also works for those that develop new materials, develop new or improved software applications, constructing and testing prototypes and models, testing new concepts, develop new manufacturing processes or improving existing ones, and develop new materials. In general, the benefit is designed for those companies that endeavor to or succeed in improving what they do and/or what they produce. A specialist can help you isolate the activities that qualify for the credit within your company and optimize them.
Which Expenditures Qualify For The Incentive?
The activities that qualify for the tax credit in the member states include:
• The costs associated with the staffing requirements of the manpower directly executing the R & D activities.
• Costs associated with sub-contracted R & D activities. These costs incurred by universities and third parties qualify subject to applicable restrictions.
• Materials as well as consumables acquired in pursuance of non-capitalized items and R & D activities.
• Equipment (this must qualify for capital allowances for plant and machinery).
• Overheads apportionment – overheads associated with the R & D activities such as rates, rent, and utility bills.
The benefits associated with these incentive are quite significant and worth your time and effort. Find a reliable and experienced tax company to help you with your requirements with regards to optimizing your activities and filing for your taxes.