Let’s talk taxes, everybody’s favorite subject. Specifically, let’s talk about a newly permanent tax credit included in the recent $600 billion tax deal signed into law by the president. It’s called the Research and Development credit, and Michael Siegel of Industry Week calls it, “the largest tax credit out there for U.S. businesses.”
If you don’t see how that could be, you’re not alone. Many people understandably believe that Research and Development is confined to a lab environment, but the government’s definition of R&D is much broader than that. As Siegel explains, eligibility is actually tied to improving existing products or processes. So any step taken to make them better—faster, cheaper, cleaner, more efficient—could qualify a company. The credit has existed for a few years now, but only as a temporary credit that needed to be renewed each year. While that didn’t stop many businesses from taking advantage of it, the uncertainty surrounding its future made it difficult for companies to plan ahead and discourage some businesses from taking advantage of it. Likely to be even more enticing is the so called “turn off” of the Alternative Minimum Tax (AMT) floor which makes it easier for small businesses to gain the full benefits of the credit. According to the IRS, in the last tax year on record manufacturing companies comprised the largest amount of R&D Tax Credit claims at 39.2 percent. After these modifications, it seems safe to say that number will be going up.