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Understanding the Federal R & D Credit

The federal government offers many tax credits to benefit businesses. It’s up to you to determine which ones you can use. The federal R & D credit is one many companies overlook. They may not know whether it exists or if they qualify. The following will help you understand this tax credit to determine if you can apply it to your taxes.

What Is It?

The R & D credit encourages companies to invest in innovation, research, and development of new technologies. It was introduced in 1981 and has undergone numerous changes over the years. It allows companies to offset the research and development costs with tax credits to reduce liability, including alternative minimum taxes for all companies and startup payroll taxes.

What Are the Benefits?

The R & D credit aims to improve the economy through innovation. While new changes to the law have spread the tax credits over five years instead of one, they can still benefit companies in several ways. You will reduce tax liability over the next few years, increase your market value and cash flow, lower your tax rate, and keep more of your profits in the business.

Can I Claim It?

The most important question is whether they can claim the R & D credit. The current IRS language indicates the credit is available for companies that employ engineers, test products, engage in data science and analysis, or outsource product research. The business must demonstrate hard science in their study. You will need appropriate documentation to avoid an audit.

If you think you qualify for the R & D credit, visit the B. Riley Financial website to talk to a tax professional.

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