Companies across the US claim billions in R&D tax credits each year, but most still go to large corporations. Now, startups and SMBs can take advantage of America’s biggest tax incentive.
For most companies, the credit ends up being ~15% of their total qualified research expenditures.
$10 billion
In 2019, over $10 billion in R&D tax credits were claimed by businesses of all sizes across the US.
The R&D credit by the numbers
History of the R&D credit
ESTABLISHED
In 1981, the US passed legislation introducing the federal R&D tax credit, for companies creating new inventions/patents.
A majority of credits were claimed by companies doing over $100MM per year in revenue, leaving out small businesses.
THE PATH ACT
Ever since the introduction of the R&D credit, it was always at risk of being shut down.
In December of 2015, the PATH Act was signed into law, making the R&D credit program permanent and enabling small businesses to benefit as well.
PAYROLL TAX & AMT
Qualified small businesses can now reduce their payroll taxes up to $250k per year with the R&D credit.
Additionally, businesses with less than $50 million in gross receipts can now use Federal R&D tax credits to reduce Alternative Minimum Tax (AMT).
An R&D credit simulation
A tech startup based in San Francisco raises $4M to develop smart dental technology & insurance products. In 2017, $1.16M of this capital is spent on qualified innovation activities as follows:
$1,100,000
SALARY AND WAGE EXPENSES
(1) W-2, Box 1, for research, direct supervision, direct support; must be US based
$41,500
THIRD-PARTY EXPENSES
Performed by non-employees and contractors; 65% of contract research expenses may be eligible
$24,000
SUPPLIES
Performed by non-employees and contractors; 65% of contract research expenses may be eligible
$1,165,500
TOTAL R&D SPEND
TAX CREDIT AMOUNT
$116,550
*For most companies the credit is 10% of qualified research expenditures.
Ready to pursue your R&D tax credit?
Our team is happy to help you determine your potential R&D tax credit benefit and answer any questions you have. If you want a quick estimate, just use our handy R&D Tax Credit Calculator.
