What is the R&D Tax Credit?

What is the R&D Tax Credit?

The Credit for Increasing Research Activities (“The R&D Tax Credit”) is a general business tax credit that was implemented to assist businesses that incur qualifying research expenses.
Federal and state R&D tax credits can amount to as much as 20% of the costs incurred in developing new products and manufacturing processes as well as improving existing products and processes.

The R&D tax credit was originally introduced by Congress in 1981 to incentivize companies to develop new and improved products and processes. In addition to the federal tax credit, many states provide their own R&D tax credit.

Businesses that utilize the R&D tax credit include all types of manufacturing companies, architectural and engineering firms, software development businesses as well as companies engaged in developing a particular technology to enhance their core business endeavors.

The federal R&D tax credit is a computed proportion of the Qualifying Research Expenses (QREs). The proportion or amount of the credit depends on several factors and is calculated using either the Regular Credit (RC) method or the Alternative Simplified Credit (ASC) method.