A Brief Overview on the Research and Development Tax Credit
Background
In late 1980 the United States was overtaken by Japan as the leader in the automotive manufacturing industry. As a response, Congress included in the 1981 Tax Act, a Research and Development Credit, which created new incentives for business owners to improve upon products, processes, open new locations, or to hire new employees. However, this credit opportunity was not fully realized by most small to midsize companies because applying for the credit required impeccable record-keeping of research activities. Since presenting impeccable records to the IRS was such an arduous process, many companies did not take advantage of this do to the lack of internal resources.
Alternative Simplified Method for Claiming the Research Credit
On June 17, 2008, the IRS rolled out the Alternative Simplified Crediting Method (ASC). This made it much simpler for businesses to apply for and claim the research and development tax credit. Moreover, if companies choose to apply using the ASC method for calculating their R&D expenses, they are no longer required to produce impeccable records in exchange for a slightly reduced credit. The ASC method also ensures that businesses are staying well within the IRS safe harbor zone, eliminating the risk of an audit. Overall the ASC method has made it much easier for companies to apply for and claim their R&D tax credit.
The Path Act of 2015
After more than 30 years and 12 modifications to the Research and Development Tax credit, the PATH (Protecting Americans from Tax Hikes) Act of 2015 finally made this a permanent part of our tax code under section 41 of increasing research activities. Today, even after these changes, only 5-7% of the businesses that qualify take advantage of the research and development tax credit. Therefore, as a business owner, it’s crucial to take advantage of this opportunity.
How Medical Incentive Advisors Can Help You
At Medical Incentive Advisors, we have been working with clients across the medical industry to recover over $3 million in overpaid taxes since the start of the Covid-19 crisis. Our process of recovering your credits is streamlined and straightforward for you and your business. After a free consultation, you simply fill out our Business Qualification Form (BQF), upload all documents via a secure link, and then let our team handle the rest. Our team of CPA specialists will help your business recover as much as possible. Even if you do not qualify, any inquiry into your business is free of charge, so contact us today.
