Research & Development (R&D)

R&D Tax Credits: Valuable Cash Infusion for Businesses

Almost every business in America is wrestling with a painful economic slowdown caused by the coronavirus pandemic. Research and development (R&D) tax credits can be a very effective and controllable way for businesses to replenish valuable dollars spent on new and innovative products or processes.

Overview: R & D Tax Credit

The U.S. federal tax law provides a benefit — in the form of a nonrefundable tax credit — for companies that engage in qualified research and development activities (see a list below). The Sec. 41 credit, which amounts to as much as 20% of the excess of qualified research expenditures for the tax year over a base amount, can create immediate cash flow by reducing current year tax liability dollar for dollar. While nonrefundable, any credit not used in the current year can be carried back one year and carried forward 20 years under Sec. 39. In addition, qualifying activities that can be documented in prior years can create additional cash flow in any open tax years (currently three years) by filing an amended tax return.

In these uncertain economic times, these beneficial credits demand another look. Learn more about R & D credits by contacting our office today.