The R&D or Research and Development Tax Credit is available to far more industries than you’d think, including manufacturing, construction and software development among many others. You don’t have to develop a new product to qualify; even improving processes can be a qualifying activity. The R&D Tax Credit is one of the most lucrative available as it’s a dollar-for-dollar reduction in tax liability.
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The credit's been around for a long time. It used to be that it would expire every year and then the government would have to bring it back in new tax laws, but in 2015 it was made permanent.
That's great for tax planning. And one of the benefits of the R&D credit, it's a dollar-for-dollar reduction in your tax liability.
When you think of research and experimentation, you generally think of – at least what I think of – is somebody in a white lab coat running around in some sterile laboratory with beakers and stuff, doing experimentation, but that's not necessarily what it is.
You can be a manufacturing company or maybe a construction company or an architectural firm or a software development firm. And you may doing day-to-day things, developing new products for your customers, new software, even improving your processes to manufacture your products – that all could qualify for research and experimentation.
And the credit can be 6, 7, 8% maybe – depending on what you're doing – of the total expenditures related to that project. And many states also have a credit for that type of research and experimentation.
For example, Pennsylvania also does. And Pennsylvania is kind of unique because, if you can't use the credit in your business or the shareholders or owners can't use it, you can sell it for cash.
That's a great advantage because a lot of start-up companies that are doing R&D don't have any tax liability and they're losing money, but they can turn around and sell a Pennsylvania credit to help fund the growth of their business. So that's a great advantage.