Finance

What Are RD Tax Credits?

One of the most unused tax credit options is known as the Research and Development Tax Credit or RD Tax Credit for short. This is a tax credit that is available to all businesses wherein they can apply for a lowered state and federal tax liabilities. In truth, it was envisioned to reinforce businesses to engage in local research and development activities and to develop the systems and processes within the business operation to drive growth and development. The great thing about this tax credit is that it is open to all types of businesses, whether it be small to medium enterprises or even those with established facilities and operations, there is even a separate clause for start-ups which makes it the most open of all tax credit incentives. A business applying for R&D tax credits must qualify along with the four-part requirement of the policy, which is to identify the R&D activities engaged in by the company and the expenses for such activities. However, of all the tax credits offered by the state and federal laws, the R&D tax credits are the most underutilized. This could be because not many companies are aware of this tax credit. They may have probably heard about it and deduced that research and development only happen in big businesses and those that have laboratories and scientists on the payroll. In truth, most companies have R&D activities and expenses, they just do not know that they can be considered as such. Moreover, even if they do have R&D activities, most companies do not know how to apply for this tax relief measure. Thus, businesses need to study what the R&D tax credit is about, like that it was developed to help US-based companies engage in research and development activities to grow their business in terms of coming up with new products, improving old ones, or innovating systems and processes. The Protecting American from Tax Hikes Act or PATH has ordered that R&D tax credits become a permanent measure and all businesses can apply for it. Given that it can provide a needed relief or capital to the business, one only has to find someone who can help them file for the tax credits. 

RD Tax Credits Application Requirements 

To apply for the RD tax credits, a business must first determine if the company does qualify for the tax credit incentive. Based on the policy guidelines of the tax credit, almost all businesses can qualify and apply for it. It is such a waste that most companies pay exorbitant amounts to the state and federal government for taxes when they can lessen this through the R&D tax credits. One of the most important requirements to apply for the R&D tax credit is to provide proof that the company has qualified innovation activities that helps the business attain growth and development. Qualified innovation activities encompass a wide array of activities and processes that each business is bound to have one or two and this is enough for the first part of the application process. R&D activities can range from developing and improving processes, products, and services to developing technology, programs, and software. One of the avenues that a company may take and explore is the use of software and technology as a qualified R&D activity since the use of automation, machines, and software programs have become more common in all types of businesses. It does not even matter if you have a product or a set of services, as long as the company consciously engages in activities that promote growth and development then they can apply for the tax credits under R&D. 

Filing R&D Tax Credits Application  

If you have ascertained that your company qualifies for the RD tax credits, then you must hire a firm that can help you with the complicated application process. The firm will begin by doing a feasibility analysis of your company, wherein their experts will assess and evaluate your current processes, systems, and practices if it will qualify for the R&D tax credit. The feasibility analysis will identify the research and development activities that the company currently has in place, as well as proof of the expenses that the company had spent on the said activities and projects. The results of the feasibility analysis will then be used as the basis for the estimate of the tax credits applicable to the business tax liabilities. It can be said that the more research and development activities and expenses there are in the company, the higher the estimated tax credit value would be. It is also important to provide proof or evidence that the company did spend for research and development activities. The firm that will be hired for this purpose can go through the financial records, payroll records, supply and contract expenses, and vendor invoices and gather the needed documents in support of such claims. Once the firm has completed the feasibility analysis and gathered sufficient evidence in support of the qualified R&D expenses, the firm will then present their results and identify the expenses and fees to be incurred if the company will push through with their services to apply for the R&D tax credits. 

 The Benefits of Filing R&D Tax Credits 

Filing your RD tax credits application can be tricky and time-consuming, and this is also the reason why you need to hire a firm to do it. This would mean that the company will have again to shoulder the said expenses but this is money well spent. It can be expected that the state and government will significantly provide tax credits that will lower the tax liabilities of the company for about three years after the filing and three years backward from the said date. Moreover, the tax credits can result in actual cash savings and value which can be invested back to the company through product development and innovative research components. It can help the company develop more relevant products and other services that will lead to growth and progress. If small to large businesses become successful, everyone will also become successful.