The R&D Tax Credit: A Tax Strategy Designed to promote economic growth in the U.S.
What is it? A dollar-for-dollar credit against taxes owed.
R&D tax credits directly offset federal and state tax liabilities flowing through right to the bottom line.
R&D tax credits can amount to as much as 20% of the costs incurred in developing or improving products, fabrication processes and software
Not only is there a Federal R&D Tax Credit opportunity
There are State R&D Tax Credits: Over 35 states also have research credit incentives
Qualifying Research Activities
- Develop new or improved products
- Develop new or improved fabrication processes
- Develop new or improved software
- Develop new or improved technique
- Unsuccessful development of any of the above
Examples of Qualifying Research Activities
Life Sciences - Develop new therapeutic drugs, medical devices, etc.
Distribution - Develop an advanced software system for managing inventory at multiple storage locations
Manufacturing - Design, develop and testing to improve a fabrication process
Any Industry - Software development for an internal use ERP system
Qualifying Research Expenses (QREs)
- Taxable Employee Wages
- “Consumed” Supply Expenses
- Contracted Labor Costs
- Leased Computer Expenses
Examples of Qualifying Research Expenses
Taxable Employee Wages: Scientists, Engineers, CEO, Quality Control, etc.
Consumed Supplies: Chemicals, lab supplies, molding, sterilizing and finishing materials
Contract Labor Expense: Third-party software developers, tool makers, testing labs, etc.
Leased Computer Expense: “Cloud” hosting – Amazon Web Services, Rackspace, etc.
Path Act of 2015
- Made the R&D Tax Credit Permanent
- R&D Credits can be used to offset FICA tax for “Qualified” Small Businesses
- R&D Credits can be used to offset alternative minimum tax (AMT) for “Eligible” Non-public Small Businesses
FICA Tax Offset Qualified Small Businesses:
- Corporations or partnerships having gross receipts of $5,000,000* or less during the taxable year, and
- Did not have gross receipts for any year preceding the 5-year period ending with the taxable year.
Tax Cuts and Jobs Act (TCJA)
- Reduction of the Corporate Tax Rate to 21%
- Elimination of Corporate Alternative Minimum Tax
- 20% Pass-through Deduction on Qualified Business Income
- 79% Reduced Credit Under Section 280C
$10,000... $100,000... $1,000,000
How would you reinvest that money back into your business?
This information and webinar were presented by Steve Powers, President of Intrepid Advisors