Make Use of the Research and Development Tax Credit
While big corporations like Boeing, Mattel, Caterpillar and Google are saving millions of dollars through the use of Research and Development tax credits, it is a tax saving opportunity that is often overlooked and underused by smaller businesses. In fact, research has shown that only about 5% of small and medium sized companies that are eligible for this tax advantage actually make use of it. What many of these companies fail to realize is that the Research and Development tax credit covers a broad range of improvements including making changes to how an item is produced as well as making a completely new product.
The following are some facts about the Research and Development tax credit that should be considered by businesses hoping to gain a tax advantage for 2015:
? The Research and Development tax credit is available to businesses of any size, business structure or growth stage. These credits amounted to more than $360 million dollars in tax savings for corporations of all sizes in 2012.
? Attempts to develop and improve a new process, technique or product may qualify for the credit regardless of the level of technological advancement achieved by the end result.
? Some internal processes such as internal use software may be eligible.
? The time spent by company executives in brainstorming, strategic planning, product development and review may qualify. The courts have previously allowed as much as 75% of a CEO’s time and an even higher percentage for other executives.
? Although tax examiners may ask for detailed time tracking and accounting records in he event of an audit, several court cases have accepted oral testimony as sufficient documentation.
? Research and Development tax credits that were not claimed in previous tax years can be claimed on amended returns for the previous three years. If credits from earlier years were not claimed due to lack of profitability, they can be reported on a carry forward schedule going back as far as 15 years without even amending the returns.
? In addition to federal tax savings, most states now offer a Research and Development tax credit.
The bottom line in is that there is a substantial tax savings to be gained by businesses of all sizes though the use of the Research and Development tax credit. With the end of the year just around the corner and tax season on the horizon, now is as good a time as any to take a closer look at processes and products to determine whether they are eligible for this tax advantage.
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