If your business doesn’t do research, you may think research and development tax credits don’t apply to you, but this year you may be wrong. Recently the rules for R&D tax credits were redefined and the criteria for qualifying have become more lenient and now include a larger group of businesses, specifically manufacturers. You may be entitled to a share of the billions of dollars offered to small businesses this year and not even know it.
Research and development tax credits have been offered by the U.S. government since 1981. Originally the R&D tax credit was offered to businesses that invested in developing their products and services. For example, a manufacturing company that spent a month investigating ways to improve the durability of its materials qualified for a tax credit. Today, R&D includes credit for qualified research expenditures as well. QREs are any costs or investments made to improve a business’s services. So instead of only applying to companies that develop the quality of their products, the R&D tax credit now applies to companies that develop their production process as well.
QREs are a huge win for the manufacturing industry, where an effective production process is crucial for having a superior business. If your company has invested in new, more efficient equipment, you may qualify for an R&D tax credit.
Encourage Independent Research
The new R&D tax credit rules also consider the wages you pay an employee involved in research to be a QRE. This means if you have an employee who has spent time researching ways to make production, products, or services more efficient, his or her wages are considered a QRE and will be factored in to your total R&D tax credit.
Get Credit for Past Expenditures
A further addition to R&D credit was accepted by the Internal Revenue Service in January 2007: a new way to calculate your total tax credit called the alternative simplified credit. This alternative allows businesses to use QREs accumulated in the past three years as a baseline for their credit in the current year. So any service development, product research, or process improvements made by your company in the past three years could be deducted from your taxes this year.
Increase Quality, Decrease Taxes
Improving the quality of your services to decrease the quantity of your taxes is an ideal opportunity, but according to a 2008 survey by RSM McGladrey, an accounting, tax, and business consulting firm, only 15 percent of manufacturing companies plan to take advantage of R&D tax credits this year. R&D tax credits encourage global competition, expand the number of services the U.S. market has, and raise the American standard of living by introducing better products. Not only do they contribute to our country’s market share at an international level, they create more local jobs in the form of research positions.
The bottom line: Take advantage of this opportunity to improve your services, boost our country’s standards, and get a break on your taxes.