The Research and Experimentation Tax Credit rewards companies who invest resources in innovation and product and process improvements which help to expand our economy. The U.S. government is offering this unique credit for a limited time, and on a retroactive basis.
The R&E tax credit has been in existence since 1981, but recent regulations have relaxed the definition of qualified research activities. Consequently, many companies that were not eligible in the past may now take advantage of this federal tax credit. Due to this change, companies may file amended tax returns to obtain refunds of previously paid income taxes. In some cases, companies may be able to recapture taxes paid up to four years ago.
The R&E tax credit is a wage-based tax credit available for the development or improvement of products, processes, techniques, formulas, inventions or software. In addition to qualified wages, companies may capture supply costs for prototypes, as well as 65 percent of contracted labor spent performing qualified research on behalf of the company. This tax credit is available to all entities filing a federal tax return. In addition, several states offer a modified R&E tax credit.
Companies can benefit by both deducting the research expenditures and by claiming the credit. While the research expenditures are a reduction of taxable income, the R&E tax credit is a general business credit, and a dollar-for-dollar reduction of tax.
The R&E credit is 20 percent of the company’s qualified research expenditures in excess of a base amount. Companies must first use the credit to offset tax for the year the credit is generated. However, if additional credit remains, the company may carry the credit back one previous tax year or forward to the next 20 years.
On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008, and the Research and Experimentation Tax Credit program has been extended through 2009.
Eligible Industries May Include:
- Aerospace and Defense
- Agriculture and Farming
- Architecture and Engineering
- Boat Manufacturing
- Chemical Manufacturing
- Custom Manufacturing
- Dental Laboratories
- Design-Build Contracting
- Medical Device Manufacturing
- Metal Casting and Fabrication
- Oil and Gas
- Plastics Processing
- Software Development
- Tool and Die
Qualifying Activities May Include:
- Designing new products
- Developing new, improved or more reliable products, processes or formulas
- Developing prototypes
- Design tools, jigs, molds or dies
- Developing or applying for patents
- Performing certification testing
- Conducting testing of new concepts and technology
- Developing or improving production or manufacturing processes
- Improving or building new manufacturing facilities
- Expending resources on outside consultants or contractors to do any of the above-stated activities,
Brochures Available for Download:
Recently published articles, authored by our team of experts:
- The Impact of Union Carbide on Research Credit Claims, Journal of Taxation, May 2009
- Inject Cash Into Your Bottom Line with the Research and Experimentation (R&E) Tax Credit, Plastics Business, Summer 2006
- Tax-Breaking the Mold: Research & Experimentation (R&E) Tax Credits for Mold Builders, American Mold Builder, Summer 2006
- Something to Mill On: The Research & Experimentation (R&E) Tax Credit, Tooling & Machining, Fall 2006
- Research Pays Your Taxes, Modern Casting, January 2008
- The Research and Experimentation Tax Credit: Turning Up Your Bottom Line, Manufacturing News, March 2008
- Substantiating Research Tax Credits in Today's Environment, Plastics Business, Fall 2009
- The Research Tax Credit for the Tooling and Machining Industry, Tooling & Machining, Fall 2009
R&E E-newsletter archives:
For more information about R&E Tax Credits, please contact Doug Mueller, Adam Herman or Mike Devereux II at 314.862.2070. Or, e-mail mdevereux@muellerprost.com.