Why R&D Tax Credits are Beneficial
The Research & Development Tax Credit or the R&D Tax Credit was made in 1981 as a part of the Economic Recovery Tax Act that helps companies to stay competitive in the global marketplace. Another thing is that such credit was made official last January 1, 2016. But, there are only about 1 out of 15 small to mid-sized firms that are taking the full advantage of the R&D Tax Credit because of the misrepresentation about it in tax credit laws or due to lack of information.
Below are some of the reasons why getting R&D Tax Credit is beneficial:
Increase your Bottom Line
This kind of tax credit can actually help reduce the state tax and federal liabilities of a company. Any company which is involved in the R&D can in fact get about 10 – 15% or more of the ROI for their qualifying business activities. The credits likewise are considered as an asset because it helps increase the market value of the company and strengthening it as an acquisition target. The money is then going to be saved and will be invested towards new R&D projects that helps in generating cash flow and growth for the company for any future operations. Such kind of tax credit in fact is an offset against tax liabilities and this could be carried for up to 20 years.
Motivate on Innovation
Such type of credit in fact is made available for the companies who process, improves, develops, designs, invents and so much 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. These components are then going to be produced on a consistent innovation which is essential to remain competitive, which in fact is why the IRS wants to give your company ROI.
IRS in fact had broadened the definition of R&D. The Qualified Research Activity (QRA) have an activity which falls in the IRS Four Part Test. Such test will need a new or an improved business component to where it must be technological in nature, eliminate on uncertainty and process experimentation.
Helps Maintain 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 would take advantage on such credit and be able to claim upwards on R&D Tax Credits, which then makes it one of the biggest tax credits that are now available. 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.