The R&D Tax Credit is a federal tax incentive (also available in many states) designed to promote innovation. It allows companies to receive tax credits for expenses incurred for research and development, thereby lowering their tax obligation and increasing funds for future innovation.
Primarily a labor-based incentive, the R&D Tax Credit applies to activities undertaken to develop new, improved, and more reliable products, processes, and formulas, such as:
The credit is generally equal to 20% of qualified costs and is a dollar-for-dollar match on both federal and state taxes owed. Taxpayers can carry forward the credit for up to 20 years and may amend any open prior tax years to claim refunds. In 2012, more than 15,000 companies claimed the credit with a benefit of over $8 billion.
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