The Research and Development (R&D) tax credit continues to be one of the best opportunities for businesses in the U.S. to reduce their tax liability substantially. Companies from various industries can qualify for this government-sponsored tax benefit just by performing their day-to-day activities. The R&D tax credit, as prescribed in 26 U.S.C. § 41, may be claimed by taxpaying businesses that develop, design, or improve products, processes, formulas, or software.
The credit was introduced in 1981 to increase technical jobs in America by encouraging businesses to invest in innovation. The distinction is calculated based on the wages of the employees performing the qualifying work, making it the most valuable tax incentive available to American businesses. Furthermore, it can be availed at the federal and state levels, with over 30 states giving credit to balance state tax liability.
The R&D tax credit is for businesses of all sizes, not just major corporations with research labs. However, what constitutes R&D concerning the credit is much more expansive than business owners realize, now with an extensive list of activities qualifying for the credit, such as processes related to applied sciences or other technical projects.