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Federal Research and Development Tax Credits

What Are R&D Tax Credits?

The research and development (R&D) tax credit is a federal tax incentive intended for businesses of all types and sizes to conduct applied R&D within the U.S. that will lead to new, improved, or technologically advanced products, processes, principles, methodologies, or materials. A tax credit can be used to offset income tax liabilities on a dollar-for-dollar basis, thereby lowering your company’s effective tax rate and increasing cash flow. Recently, the criteria for qualifying for R&D tax credits have been redefined and are now more lenient, including a larger group of businesses. In fact, a company may qualify if it has simply invested time, money, and resources toward the advancement and improvement of its products and processes.

The Federal R&D tax credit (Section 41) is a 20% incremental credit on qualified R&D expenses that exceed a base amount or a 14% incremental credit under the alternative simplified credit regime. In addition, many state governments reward taxpayers with income tax credits for increasing R&D spending. In some states, companies may take a credit against their state income or franchise tax equal to a percentage of their qualified R&D expenditures over some base amount (the credit typically can be carried forward or backward for a specified number of years). States generally use the same federal definition of qualified R&D in their tax codes.

Take Advantage Of R&D Credits In Your Company

The professionals at Convergence CPA Group have successfully worked on credit studies with large and small companies. Let us put our expertise to work for you, helping you reduce the cost of labor-intensive R&D investments with research tax credits. Contact us today to learn more about how we can help you take advantage of R&D tax credits in your company.