The Research & Development Tax Credit Is Now the Time to Claim the Credit?

The Research & Development Tax Credit

Is Now the Time to Claim the Credit?

With all of the uncertainly going on today, market’s in turmoil, shortages on our grocer’s shelves, airline travel being curtailed, is now the time to address the Research & Development Tax Credit?

Very simply, the answer is a resounding “Yes”!

How can one explore claiming the R&D Tax Credit with so much uncertainty?  This reason is exactly why all businesses should claim every credit and deduction to which they are entitled. 

The R&D Tax Credit is a federal tax incentive meant to stimulate innovation, technical design, and manufacturing within the US.  The Credit was enacted in 1981 and made permanent in 2015, and is also available in over 35 states. The Credit has gone through many changes over the years, making it available to most businesses that have the qualifying activities.

The R&D Tax Credit is a general business Tax Credit under Internal Revenue Code section 41 for companies that incur R&D costs in the United States.

So, just what is a Tax Credit, and what makes it so powerful?  A Tax Credit is a dollar for dollar savings against taxes owed.  A Tax Credit is far more favorable than a tax deduction because a Tax Credit reduces the amount of taxes owed, whereas a deduction reduces the amount of taxable income.

To make claiming the R&D Tax Credit even better for business, you do not have to be paying tax in order to claim the credit.  The Credit can be claimed even if the business is in a loss, as the Credit can be carry forward for up to 20 years.  Of course, it may not make sense to claim a credit that one cannot use, but if the business is going to be in a tax paying situation in the near future, it may make sense to claim the credit, and then use it to offset future tax.

But wait, there’s more!  The Credit can not only be claimed for the current year’s activates, but also for the prior open three tax years.  Many States match the time period for claiming the Credit as well, and this means the Credit can add up fast for any business.  For example, if a company was able to claim a $100,000 R&D Federal Tax Credit for the current tax year, the company can claim $100,000 for four Federal tax years, and four State tax years, for a whopping $800,000 tax credit.

Now back to the question, is now the time to claim the R&D Tax Credit?  In our current state of the unknown, getting money back into a business is a top priority, and the R&D tax credit is the perfect tool in order for businesses to get cash back into daily operations.  We have seen a huge uptick in the number of companies exploring the benefits of the R&D Tax Credit, and now may be the best time for any business to claim the Credit. 

Of course, claiming the R&D tax credit should be discussed with your most trusted advisor, your CPA, as you never want to find out that you have been leaving money on the table!

Jill Mazur, CPA


Engineered Tax Services

949-350-6369 / [email protected]