The R&D Tax Credit was introduced as part of the Economic Recovery Tax Act of 1981 and is available at both the federal level and in most states (including California). The credit rewards taxpayers of any size that design, develop or improve products, processes, techniques, formulas or software. The credit is generally equal to 13% of qualified R&D expenses and is a direct offset of both federal and state taxes owed. Recent legal and legislative developments have been very taxpayer-friendly and allowed many companies the opportunity to claim the credit for the first time. Congress made the federal credit permanent with the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and this legislation also allows taxpayers to offset alternative minimum tax (AMT) with the credit as well offset payroll tax for start-up businesses with no income tax liability. Taxpayers may carry forward the federal credit for up to 20 years and the state credits do not expire. Qualified expenses include wages, supplies and contract research. In addition to claiming the credit on current year returns, taxpayers are permitted to amend any prior open tax years to claim refunds of taxes previously paid. The total amount of federal and state R&D Tax Credits claimed annually exceeds $10 billion.
The R&D Tax Credit is intended to benefit the manufacturing sector, but is claimed by companies in a variety of industries including (but not limited to):
R&D tax credits can provide a tax-saving opportunity to companies that devote time and resources to:
We begin each engagement with a feasibility analysis to determine the scope of the project. We then address the most compelling arguments from the IRS and FTB. This allows our credit claims to withstand the scrutiny of examination and sets us apart from our competitors. Our process includes: