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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. This kind of credit was made permanent officially in January 1, 2016. But, there are only few small to mid-sized companies who actually are taking the full advantage of the R&D Tax Credit due to the misrepresentation about it on tax credit laws or simply 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:

Helps Increase the Bottom Line

This kind of tax credit can actually help reduce the state tax and federal liabilities of a company. 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. Credits like these are considered also as assets because it is able to help increase the market value of a company and it likewise helps to strengthen it as an acquisition target. The money will be saved and will likewise be invested to a new R&D project that is able to help on generating cash flow as well as help the company to grow 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.

Motivating Innovation

Credit like these in fact are made available to firms that process, develops, improves, invents, designs and many others more. The companies are then rewarded for the improvements and such credit could then help in generating high paying positions as well as company profits. Components like these will then be produced for a consistent innovation that is crucial to be able to remain competitive, which would be why the IRS wants to give your company an ROI.

Broadened Definition of R&D by IRS

The IRS in fact helped to broaden the definition of R&D. A Qualified Research Activity (QRA) consist of any kind of activity that is part of the IRS Four Part Test. This kind of test requires a new or an improved business component where it should be technological in nature, eliminates uncertainty and the process of experimentation.

Maintains your Competitiveness

There are actually a lot of states nowadays who are offering R&D tax incentive for supplementing Federal Research & 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.

5 Takeaways That I Learned About Taxes

5 Takeaways That I Learned About Taxes