Research and development tax credits pave the future
Research and development efforts require large amounts of time, money, and dedication of resources in order to find that next thing. It’s great to pontificate and wonder what if, but if you don’t have the funding to maintain your research, the lack of money will rapidly curb what you’re able to do, leaving you asking – “what now?”
Luckily, in recent fiscal cliff negotiations, Congress voted to extend the R&D credit through 2013, as well as retroactively for 2012. The credit rewards any taxpayers that are working to improve, design or develop new ventures such as software, formulas, products or processes, and reimburses forward-thinkers based on eligible qualified research expenses (QREs).
How the research and development tax credits work
The credit can reduce R&D expenses by an approximate range of six and eight percent. These expenses are limited to wages paid to internal staff for qualified services, the supplies necessary to conduct research and any computer costs incurred while conducting said research, as outlined under IRC § 174. Additionally, if you are hiring a U.S. contractor outside of your business to conduct the research, you are able to claim 65 percent of those costs.
It’s important to note that tax payers looking to utilize the credit can only do so if “discovering information that is technological in nature,” “discovering information to be for use in the development of a new or improved business component of the taxpayer,” as outlined by the U.S. Government Accountability Office. But even with the strict specifications of the credit, it serves as a motivating incentive for businesses to lead the charge on innovation in technology and business processes.
Growth is fostered when beliefs are challenged and individuals push themselves to think of new possibilities. In order to take part in regular R&D efforts, a number of investments will be involved, but with the extension of the credit, innovators can worry slightly less about money as they reach for the stars.