Is Your Company Introducing or Improving Products?February 01, 2011
Manufacturers often overlook significant tax savings from the Research and Development Tax Credit because they don't understand what activities qualify under the tax code.
Contrary to popular opinion, the tax credit is not just for scientific research done in a laboratory setting. The credit is also available to companies introducing new products, improving current products, and developing or enhancing their processes.
In other words, your company might be able to take advantage of this beneficial tax break simply by making its products better, faster or more cost effective.
If your firm is eligible, you can generally claim a 20 percent credit for related expenses above a base amount, including:
In-house expenses for wages
Supplies used to conduct the research
A percentage of any contract costs
Good news: In recent years, the IRS has relaxed some of the requirements for the Research and Development Credit. Even if you didn't qualify in the past, you might be eligible now. In addition, many states grant their own special tax benefits to companies engaged in research and development.
The process to collect research tax benefits is complex. Companies must provide certain documentation showing that their projects are not just part of the ongoing cost of doing business.
Under the ETax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, this credit is set to expire on December 31, 2011, but has been renewed numerous times.