With all the news developing in Washington about the proposed tax overhaul, it’s important to remember that the existing tax rules are fully in place for the 2017 filing year. That means that when you’re filing your taxes next year, it is important to consider the federal Research Credit and the various state credits that might also apply.
The federal research credit dates back to 1981, and you can expect to receive tax credits for eligible experimental development costs that your business performed during the 2017 filing year that are properly documented. This important incentive program can amount to as much as ten percent of your qualified spending on people, materials, and related investments dedicated to figuring out how or whether you can make something new or improved by experimental means. This applies not only to new products, but also to improved ones, as well as new and improved processes, software and equipment. Also, because this is a tax credit and not merely a deduction, the credit value results in a dollar for dollar reduction in your tax bill!
In addition to the federal credit, numerous state credits are also in place. No matter where in the US you are located, we would be happy to help you figure out whether you qualify for these programs, and to help you file successful claims if you do. These federal and state benefits are intended to encourage companies to keep engineering, manufacturing, and software jobs here in the United States.
Things to keep in mind when considering research and development tax credits here in North America:
Many industries benefit from Research and Development tax credits
It’s important not to discount your industry just because it seems like you might not qualify. Any company that engages in experimental development can be eligible. The important thing is that the experimentation must be intended to develop or improve an existing product or process. For example, even a manufacturer of wire coat hangers can qualify so long as the aim of the experimental effort is to develop a new or improved technical capability. Such a company might try to reduce scrap rates, or improve cycle times, or reduce part weight, or engage in any of a number of other activities, all of which can be eligible for tax credit support.
Your company does not have to be of a certain size to be eligible to claim research and development tax credits
Big or small businesses can claim tax credits, as long as the processes they are developing and testing meet the eligibility criteria. Millions of tax credit dollars are left on the table every year because many companies think they are too small to claim these credits. Large conglomerate corporations aren’t the only ones that can perform research and receive funding. It’s important to know that even your small business can compete and claim research and development tax ￼credits as well. Most US taxpayers who engage in experimental development can qualify regardless of company size.
Canadian companies can also benefit from tax credits
We also offer our services in Canada, where the federal Scientific Research and Experimental Development (SR&ED) credit serves a similar purpose. A number of provincial credits are also available and we would be happy to help you navigate the rules and requirements. This is all about keeping jobs here in North America!
As always, Tax Credit Advisors is here to help. If you want to find out if your company is eligible for research and development tax credits, we can assist you. Contact us today to get started.