It’s now possible for more businesses to use the R&D tax credit.
What is the Research and Development Tax Credit?
Businesses can use the research and development tax credit for…well…research and development. For decades, large corporations have leveraged it to lob millions off their tax bills. Analysts estimate that it saves American companies about $10 billion a year.
The Path Act Made A Path For Smaller Businesses
In years past, only large corporations could take advantage of the R&D tax credit. That changed in 2015 when lawmakers approved the PATH Act, which lowered the alternative minimum tax bar and allowed for companies with profits under $50 million to qualify.
A lot of smaller businesses think they can’t use the research and development tax credit, but they’re wrong. A significant portion of taxpayers are leaving this option on the table unnecessarily.
So, let’s clear up some myths.
- Even if your company is paid for the work it performs, that doesn’t mean it’s automatically ineligible for the tax credit.
- You don’t need a patent to qualify for the R&D tax credit.
- The research doesn’t have to be universally new, just new to you.
- Even if a project fails, you may still be able to claim the R&D tax credit. Believe it or not, the IRS does understand that every idea doesn’t pan out.
- Research doesn’t necessarily mean scientific research. Applied research can also qualify.
Who Is Barred?
Traditionally, Uncle Sam barred service businesses — like financial consultancies, lawyers, restaurants, etc. — from claiming research and development tax credits. But technology created new opportunities.
Does your company make something (a product, software, structures, food)? If yes, there’s a solid chance it will qualify. For example, if you’ve developed software or a system to better serve your clients, the company may be eligible for the R&D tax credit.
Can Your Business Leverage the Research and Development Tax Credit?
Our tax division works with individuals and businesses on compliantly lowering tax obligations. We’ll assess your situation and suggest methods, deductions, credits, and strategies that will keep more money in your pocket rather than Uncle Sam’s. We’re known for crafting legal, novel solutions that save our clients’ money. Our team works with United States taxpayers in all 50 states, in addition to ex-pats around the world. Send us a message or give us a call to start learning how you can save money on your taxes.