What Are the Advantages of Receiving R&D Tax Credit

Many people make the mistake of assuming the R&D Tax Credit as a deduction. In fact, it is not a deduction, but a dollar for dollar credit against taxes that are either paid or owed. In addition to this, the taxpayer should also be able to make necessary expenditure for all qualifying R and D costs incurred in the complete year. There are several benefits of R and D tax credit.

What are the conditions that allow one to claim for R&D?

Many businesses in the process of R and D qualifying activities, make efforts to prepare new, stronger, cost effective, more reliable, precise, and more versatile processes. There are certain activities performing which a company can claim the R and D tax credits:

  • Developing a latest functional product that is launched for the first time in the market
  • Engineering and building a new product
  • Performing research that aims at identifying new knowledge
  • Figuring out new methods to apply new research discoveries
  • Designing and evaluating alternatives product
  • Introducing important changes to the design or concept of a product
  • Designing, developing, and testing pre-production models and prototypes
  • Engineering activity to accelerate the design of product to its manufacture
  • Using system’s processing modeling
  • Performing requirements analysis of system as well its functions
  • Using integration analysis
  • Experimenting with latest technologies
  • Experimenting with brand new material and integrating it to enhance manufactured products
  • Engineering to assess new specification or improved modifications, in terms of reliability, performance, quality, and durability
  • Developing new production processes during preproduction and prototyping phases
  • Conducting research that aims to reduce a product’s time to market
  • Performing research that aims at obtaining more efficient designs
  • Building and changing research methods, formulations and/or products
  • Making payment to outside consultants or contractors to perform any of the above-mentioned activities

Why do businesses overlook conducting an R&D Study?

The U.S. provides some of the richest Research and Development tax incentives, but many businesses due to ignorance fail to make the best use of it. Correct knowledge of RnD helps in receiving the cash a business deserves.

One of the main reasons why businesses overlook this source of cash is due to accelerated business growth and competition or lack of resources, expertise and time to identify and manage R & D tax credit claims.

With the issuance of IRS regulations in December 2001, company can easily get information and ways to qualify for the R & D Tax Credit.

Why is it beneficial for a business to conduct an R&D Study?

There are a lot of benefits realized by conducting a RnD study.

  • Helped in realizing thousands of dollars of tax credits, that results in cash back from the IRS
  • Permanent savings of tax
  • Financial statement benefit
  • Acts as a vehicle to realize additional savings of tax in later years
  • Enhanced market value, cash flows and earnings power of their company
  • Reduced the effective tax rate of the company


R and D Tax relief apply not just to profit making companies by paying Corporation Tax but also to loss-making companies. R and D tax relief can also be received in the form of lowered corporation tax as a payable cash credit. Hiring a proficient accountant help in getting maximum benefits of RnD tax relief.