Article
October 29, 2020
Nine research and development tax credit myths costing you money
Misconceptions about the federal research and development tax credit leave many companies paying more tax than required.
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Many private and public companies in the middle market pursue vigorous research and development programs to thwart fierce competition and explore future market opportunities. The Research and Development (R&D) Tax credit makes provisions for a benefit based on qualified expenditures that exceed a specific base amount. In addition to the federal credit, many states offer R&D tax credits. However, it is important to note that section 174 issues require taxpayers to capitalize and amortize specified R&D costs, including software development costs, paid or incurred in tax years beginning after Dec. 31, 2021.
If you engage in the following activities, you potentially qualify for R&D tax credits:
- Developing new products
- Improving existing products
- Developing new or improved manufacturing or production processes
- Developing new production equipment
- Attempting to use new materials
- Designing and fabricating tools and dies
- Developing certain types of software
Many middle market companies don’t have the internal resources to investigate and compile documentation to sustain the credits under Internal Revenue Service or state examinations.
Our R&D tax credit specialists understand the nuances of the complex rules for qualification and have years of experience developing supportable tax credit claims. Our approach includes fully understanding your business and your research activities and scaling our tools and processes to fit your business. We can help you maximize your investment in the future of your business.
When considering the research and development tax credit, it is important to work with a company who has industry-specific knowledge. RSM can perform a research tax credit study, using statistical sampling to reduce the burden on your organization.
