Research and design tax credit

Research & Development (R&D) Tax Credit Studies

The Federal Research & Experimentation Tax Credit, commonly known as the R&D tax credit, allows companies conducting qualified research activities to claim credits up to 20% on qualified research expenses. Most states also offer R&D credits which provide additional tax savings.

For tax years beginning after Dec. 31, 2015, the PATH Act allows the credits earned by Eligible Small Businesses (ESB’s) ($50 million or less in three year average of gross receipts) to offset Alternative Minimum Tax (AMT).

Also, Qualified Small Businesses (QSB’s) (start-ups within first five years) may use R&D credits to reduce payroll taxes up to $250,000 per year for their first five years.

The R&D credit is a “free second bite of the apple” as it can provide significant dollar-for-dollar reductions in tax liabilities for expenditures companies already incur for activities performed on a daily basis in creating new or improved products or processes, formulas, computer software, and numerous other innovations. It is available for a company’s current tax year as well as all open tax years; generally the past 3 tax years. In addition to generating current tax savings, a tax credit study establishes systems to capture R&D costs for future years’ tax credits.

The credit is designed to stimulate technological innovation and help boost the US economy by providing tax benefits to businesses who invest in new or improved products or process development efforts.

More about the R&D tax credit:

Practice Leader

  • Bruce Stubbs, JD, LLM
    Bruce Stubbs is a nationally recognized presenter and masters-level tax attorney with 20 years’ focus on research and development tax credits, cost segregation studies and tangible asset repair regulations (“repair regs”) related to capitalization versus expensing.