R&D Tax Credit
The Research & Experimentation Tax Credit more commonly known as the R&D Tax Credit (Internal Revenue Code Sec. 41) is a general business tax credit for businesses that are incurring R&D expenses in the United States. The tax credit is among the most significant benefits available to businesses engaging in manufacturing and software development. The incentive is broader than most businesses realize, applying not only to product development but also to other activities and improvements as well as quality enhancements.
The R&D Tax Credit is an incentive provided by the U.S. government to encourage businesses to invest in activities within the United States that will provide for product and process improvements and/or introduction of new products or processes.
Qualified activities are generally those:
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Being conducted to develop or improve products, processes, or software
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Intended to eliminate technical uncertainty through a process of experimentation
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Using a permitted science such as:
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Engineering
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Physical sciences
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Biological sciences
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Computer sciences
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Qualified research expenditures (“QREs”) include:
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Wages of those directly and indirectly performing research
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Supplies consumed
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Contract expenses
Areas where research is performed may include:
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R&D or Engineering departments
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Labs / Tooling departments
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Plants / Manufacturing departments
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Marketing departments
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Software departments
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Quality Control departments
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Sales departments
State R&D Tax Credit Opportunities
Many states have R&D credit opportunities. We will examine your state tax resource to determine if state credits may also be available.
Click here to see which states offer R&D Tax Credits.
Export Incentives
There is only one export incentive that remains intact in the United States - the IC-DISC. The Interest Charge - Domestic International Sales Corporation (IC-DISC) can provide a tremendous tax benefit for manufacturers and distributors, regardless of your form of business-C corp, S corp, Partnerships or Sole Proprietor.
An IC-DISC is typically formed as a wholly-owned United States corporate subsidiary of a domestic exporting company and serves as the exporting company’s foreign sales agent. After the IC-DISC is incorporated, it must file an election with the Internal Revenue Service to be treated as an IC-DISC, which is not subject to federal income tax and certain state income taxes.
In such a structure, the IC-DISC receives a sales commission from the exporting company on each qualifying sale of products or services to non-U.S. customers. If certain qualifications are met, a valid IC-DISC structure can functionally convert income taxed at an ordinary income rate to qualified dividend income taxed at a substantially lower rate.