The Research & Development Tax Credit, often simplified to the “R&D Tax Credit”, offers an opportunity for business owners to substantially reduce their tax liabilities.
The Research & Development Tax Credit, often simplified to the “R&D Tax Credit”, offers an opportunity for business owners to substantially reduce their tax liabilities. Using R&D tax credit software, businesses can quickly determine whether they are eligible for this tax credit.
According to The CPA Journal, the federal R&D Tax Credit was first introduced as a two-year incentive as part of the 1981 Economic Recovery Tax Act (ERTA). Its purpose was to reward US companies for increasing investments within Research and Development ventures in the current tax year while minimizing revenue loss to the federal Treasury.
This was important at the time because of concerns about the “competitiveness” of US businesses. In fact, various studies highlighted the country’s low research spending by businesses. The country wanted to compete with the latest and greatest research and inventions of the world, and thus had to invest into developments to do so. With the success of the tax, Congress has renewed the research credit repeatedly since 1981 and was made permanent in 2015.
Over time, the credit has evolved and been amended.
Currently, the R&D tax credit is available to any business that “attempts to develop new, improved, or technologically advanced products or trade processes.” Additionally, the credit may also be available to taxpayers who have improved upon the performance, functionality, reliability, or quality of existing products or trade processes.
Research has shown that each $1 of R&D tax spending drives at least $1 of extra R&D and up to $3 of economic output. Since its implementation in 1981, the research tax credit has encouraged some additional private research investment.
Our R&D claim software provides you an easy way to see what potential R&D tax credits your business is eligible for.
#Frequently Asked Questions
###Does software qualify for R&D tax credit?
Software companies are often viewed as ideal candidates for the R&D Tax Credit because of the nature of their research and activities.
###Is software development an R&D expense?
Technology and software development involves a lot of R&D, so these activities qualify for the R&D Tax Credit. Developing, improving, or modifying existing products is all part of it.
###Is software development considered R&D?
Technology and software development involves a lot of R&D, so these activities qualify for the R&D Tax Credit. Developing, improving, or modifying existing products are all part of the qualifying activities.
###What can you claim for R&D?
Qualifying expenditures generally include the design, development or improvement of products, processes, techniques, formulas or software as well as payroll for potential qualifying job titles including Director of Software Engineering, Programmer, Software Analyst, Software Developers, etc.