Tax Credits for Research and Development: An Overview

Research and development tax credit is one of the interesting benefits that go unnoticed by many taxpayers. Tax credits for research and development can be used by small or mid-size enterprise for tax deduction. In addition, companies that are developing new products or improved products can be benefitted from these incentives. The research tax credit is a dollar-to-dollar tax credit against tax owed or taxes paid.

What is Research and Development Tax Credit?

Originally introduced in the Economic Recovery Tax Act of 1981 is generally a business tax credit for companies that are donating money for R&D expenses in the United States. Tax credit has been the most valuable credits leveraged by companies. Hundreds of companies are taking advantage of these credits across several industries.

Tax Credits for Research and Development

Some of the Industries that qualify for tax credits include:

• Food science
• Automobiles
• Aerospace & defence
• Tool & Die casting
• Machining
• Pharmaceutical
• Architecture
• Software development
• Engineering

Qualifying Activities for R&D Tax Credit Activities

Companies that are into following activities can look into R&D tax credit:

• Beta testing
• Developing engineering architecture
• CAD or 3D Modelling
• Experimenting with new technologies
• Supervising technical personnel engaged in research and development
• Technical design reviews
• Documenting the results of research
• Contributing in technical meetings

Benefits of R&D Tax Credit

This tax benefit regime is beneficial, especially those people who will help to stimulate the economy and simultaneously give incentives to those people who work hard for their chosen profession to make it more useful, creative and safe.

R&D tax credit is a great incentive for companies that are willing to help with projects and development but feel the need of reimbursement. Tax credits are also essential because they boost development donations. These large-scale incentives encourage enterprises as well as individuals to make donations, thereby helping promising research and development work in the country.

Other benefits of tax credit include:

• Better cash flow
• Minimized effective cash rate
• Credits are carried forward for up to 20 years
• Increased in earning per share


Tax credit will definitely continue to boost the development and advancement of our society and our scientific advantage. It is therefore essential that these tax cuts remain intact and the company feels  obliged to offer donations for major various effective research and development.

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