R&D tax credit: Don’t leave money on the table
The research and development (R&D) tax credit is underutilized, with many taxpayers failing to claim the credit when they are eligible to do so, or making errors at critical junctures in the process.
Underutilization of a major tax benefit
Many taxpayers do not realize that the R&D tax credit is available to businesses of all sizes in many lines of business, not just major corporations conducting tests in research laboratories. Under the current tax code, any company that develops or improves products or processes may be eligible.
IRS statistics show that R&D tax credits worth nearly $11.3 billion were claimed in 2013, the latest year for which data is available. While this sounds significant, a large number of eligible entities neglect to claim the R&D credit. One of the biggest drivers for the underutilization is likely a lack of knowledge by both taxpayers and their advisers. Many are unaware of the R&D credit; those that are aware may not believe it applies to them; and those that believe it applies to them may not believe they have enough expenditures to justify claiming it, when in reality many taxpayers do qualify and will benefit significantly from an appropriately calculated credit.
Thankfully, the regulations permit eligible taxpayers to “look back” to all open tax years for potential unclaimed credits, so all is not lost if lack of knowledge precluded or limited a tax credit in recent years.