Research + Development Tax Credits

Are you taking advantage of the research and development (R&D) tax credits available to your company? Federal tax law has eased the use of R&D credits, which are a company tax relief which can either reduce a company’s tax bill or, for some small or medium sized businesses, provide a cash sum, sometimes worth thousands of dollars.

The aim of the tax credit is to encourage greater R&D spending to promote investment in innovation.

R&D tax credits generally are a hidden and immediate source of cash for companies, and a significant reduction to current and future years’ federal and state tax liabilities.

• Companies that develop new or improved products or processes, or make significant investments in development of internal use software, may be able to benefit from the credit.
• The 20 percent research tax credit is not a deduction. It is an actual dollar-for-dollar credit against taxes owed or taxes paid.
• New for 2007 – Alternative simplified credit, 12 percent of qualified research expenses (QRE) that exceed 50 percent of the average QRE for the three preceding tax years. The Emergency Economic Stabilization Act of 2008 increased this credit to 14 percent.
• A business can take the credit for all open tax years – generally the last three years plus the current year;
• Additional years may be available if the taxpayer is in a net operating loss or alternative minimum tax position;
• In a flow-through entity such as an S Corporation, the credit may be captured at the individual level and be utilized to offset other tax items;
• Tax credits may carry forward 20 years, thus creating a significant future benefit and source of capital.
• Additionally, Pennsylvania has an R&D tax credit program which allows a taxpayer to sell its state tax credits.

If you think you may meet the criteria for this credit, please contact partner William Finnecy, CPA at 814-454-4008 or wfinnecy@malinbergquist.com, or partner Joseph Petrillo, CPA at 724-838-8322 or jpetrillo@malinbergquist.com.