Why R&D Tax Credits are Beneficial
In 1981, the Research & Development Tax Credit or (R&D) Tax Credit was created as a part of the Economic Recovery Tax Act, which is considered a way to aid companies to be able to stay competitive in the marketplace. Also, this kind of credit was permanently made official in January 1, 2016. However, there are only few small to mid-sized companies that are taking its full advantage because of the misrepresentation of it on credit laws and also because of the lack of information.
Through this article, you will learn on some of the reasons with why a R&D Tax Credit is really beneficial:
Increase your Bottom Line
With this kind of tax credit, it could actually help reduce the state tax and federal liabilities of a firm. Any company that is involved in R&D actually could acquire about 10 – 15% or maybe more of the ROI for their qualifying business activities. The credits likewise are considered as an asset because it helps increase the market value of the company and strengthening it as an acquisition target. The money will then be saved and be invested to new R&D projects that will then generate growth and cash flow for the company for their future operations. Tax credits like this is actually an offset against the tax liabilities and this also could be carried up to 20 years.
Motivate on Innovation
This kind of credit is in fact made available for companies that develops, improves, process, invents, designs and many more. Companies like these are then rewarded for the improvements and is able to help generate high paying positions and company profits. All of such components will then produce a consistent innovation that is needed in order to remain competitive, which is why the IRS would want to give your company ROI.
IRS in fact had broadened the definition of R&D. The Qualified Research Activity (QRA) have an activity which falls in the IRS Four Part Test. The test needs to be new or should be an improved business component to where it has to be technological in nature, be able to eliminate uncertainty and also on the process of experimentation.
Helps Maintain Competitiveness
There are many states today that are offering R&D tax incentive in supplementing Federal Research and Development Tax Credit. Any company may be able to take advantage on this kind of credit and claim upwards in R&D Tax Credits, which in fact makes it one of the biggest tax credits which are available today. An incentive like this will allow companies in producing innovative technology which will allow a country to remain competitive in the globalized economy we have now.