A History of R&D Tax Credit

Tax credits for Research and Development have been available to companies for several years now. The credit was originally enacted on a temporary basis in 1981 to stimulate R & D activities. However, it has remained in place over the years through extensions upon each expiration and there is a move to make it a permanent extension. This tool offers potentially powerful savings on the kinds of cost-reduction investments so many businesses are making today. In fact, savings of millions of dollars or more by large firms are now causing medium sized and smaller companies to take a closer look at the R&D credit.

As the large tax and audit firms have concentrated on the Global 2000 and upper end of the mid market, most smaller companies haven’t been exposed to this advantage. That’s because to some extent, their CPA firms haven’t had the expertise to handle what could be a complicated study to find out if indeed a firm does qualify. What’s amazing is that most companies DO qualify and there’s “found money” to be recovered that goes right into company coffers. This is not a deduction that simply reduces taxable income, it’s a dollar for dollar credit – and that can add up to big money. One of the biggest recent changes in the tax code is that this is not just for companies in the R&D phase of their business that qualify anymore. A large portion of the significant investments made in process engineering by many firms in recent years can probably be subtracted right from their tax bills. And while "process engineering" may sound a bit complicated all it really means is figuring out how to make something better or how to deliver a service more efficiently. If you spent time and money doing this, a portion of those expenses qualifies for a tax credit.
It’s that simple.