Is it Time to Revisit the R&D Tax Credit?

Is it Time to Revisit the R&D Tax Credit?

The federal research tax credit (R & D credit) has been available for 35 years unfortunately, many companies fail to take advantage of its significant cash-flow benefits. Some companies may believe that the credit doesn't apply to them.  Furthermore some still believe that it is only available to biotech companies or those that conduct laboratory research. In fact, it is potentially available to any business that invests in developing new products, improving processes or techniques, creating software, and a variety of other innovations.

In addition, some companies may have been turned off by the credit's historically temporary nature. Although the credit was revived every time it expired, uncertainty over its continued availability made it difficult for companies to incorporate the credit into their long-term tax planning. Finally, many startups and smaller businesses disregarded the R&D credit because they couldn't take advantage of its benefits. This may be the case because they had no income against which to offset the credit (although it can be carried forward up to 20 years) or because they were subject to alternative minimum tax (AMT), which limits or eliminates the credit's benefits.

Last year's Protecting Americans from Tax Hikes (PATH) Act removed some of these obstacles by:

In light of these changes, companies that haven't claimed R&D credits in the past should take another look at the potential benefits of this strategy.


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