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The Research & Development (R&D) Tax Credit is a tax credit available to businesses which develop or improve products, processes, software, techniques, or formulas. Many businesses miss out on this long standing, lucrative credit because they are simply not aware that it exists, that they can qualify, or both!

What is a tax credit? A tax credit is a specific dollar amount that offsets or reduces the income taxes owed by a business, entity, or individual. For example, if your income is $200,000 and your federal income taxes are $70,000, but you have a tax credit of $30,000, your income tax bill would be just $40,000 ($70,000 tax minus the $30,000 credit). In contrast, a deduction might lower your tax bill by first reducing your taxable income—such as mortgage interest of $30,000, which would result in taxable income of $170,000 ($200,000 income minus $30,000 mortgage interest). Taxes assessed on this amount might then be, say, $60,000. When comparing tax credits and tax deductions, which is better depends on the amount of each and their specific provisions. However, if there is a tax credit available, it is typically more advantageous than a deduction. For instance, the R&D Tax Credit is usually superior to the deduction for R&D expenses, as these expenses often have to be spread out over time (“capitalized”) against your income.

Who qualifies?