The Research and Development Tax Credit
Why It Is Now More Important Than Ever to See If You Qualify
The Research & Development Tax Credit is one of the most powerful tools to put into your quiver of tax planning tools. This is a Tax Credit, which means it is a dollar for dollar savings against taxes paid.
The R&D Tax Credit is a permanent federal tax incentive meant to stimulate innovation, technical design, and manufacturing within the US. The tax credit can be captured for the current tax year, and for the prior three open tax years. If you have performed qualifying activities in the past, this could add up fast. Capturing prior years can be substantial because you were going to claim a $100,000 tax credit in the current year, this can add up to a total of $400,000!
Exploring the R&D Tax Credit became even more powerful with the 2020 CARES Act. The CARES Act now permits losses from taxable years 2018, 2019, and 2020 to be carried back 5 years. This means that businesses can file an amended tax return and get a cash refund against taxes paid in prior years. A CASH REFUND!!!
As an added benefit, any unused portion of the Tax Credit can be carry forward for up to 20 years.
Every business owner should be speaking with their most trusted advisor, their CPA, about ways to get cash back into their business, or ways to reduce taxes due. With the tax deadlines being extended, businesses can now explore claiming the R&D Tax Credit before they file their 2019 taxes. While the study normally takes several weeks, numbers can be provided to your CPA in time for filing.
The wonderful aspect about claiming the R&D Tax Credit, is that it is for activities that have already been performed. A business does not need to add any additional manpower or time into increasing sales in order to claim the credit. The work has already been performed, so why not take advantage of the R&D Tax Credit now?
In today’s current economic environment, now is indeed the perfect time for every business to explore all tax mitigation strategies, and to claim every credit and deduction to which they are entitled.
The R&D Tax Credit can be very technical, which is why you want an expert to examine capturing the credit for your business, in order to maximize the benefit, and it should definitely be an avenue to be explored. The rules and regulation surrounding the Tax Credit change all of the time, and if you could not qualify for the Tax Credit in the past, you may now be able to do so. If you are not capturing the credit, you may be leaving money on the table, and who can afford to be doing this today?
Jill Mazur, CPA
Engineered Tax Services
949-350-6369 / [email protected]