Deftech companies could recoup between 7-10% of research and development expenses with an R&D tax credit.
Deftech companies often work with cutting edge technology and need the top minds to continue pushing the envelope. Building such technology can be expensive, but there are financial resources you can use to reduce financial risk.
Keep reading to learn about tax credits you can use to reduce your business expenses in 2024.
What Tax Credits are Available for Deftech Companies?
According to the IRS, there are many types of tax credits that a deftech company could take advantage of. Of course, you will need to review the stipulations these credits to be sure they apply to you.
Now, if your deftech company is located in the U.S., you could be eligible for a Federal Research and Development (R&D) Tax Credit.
What is the R&D Tax Credit?
This credit was designed by the Federal government to reward U.S. companies investing in innovation. With this credit, a qualifying company could recoup between 7-10% of qualified research expenditures (QRE).
Some examples of QRE include:
- Improving product quality
- Development of second generation products
- Product development using computer-aided design tools
- Developing operating systems and compilers
- Creating mockups, UX design, or technical design work
- Testing automation to ensure quality during development
This is not a complete list of items that could count as QRE. Working with an R&D tax credit expert and completing an R&D tax credit study will help you flush out which of your company’s activities count in your credit calculation.
The R&D Tax Credit Study
The R&D tax credit study allows you to provide evidence of your experimental work. Even R&D projects that do not work can be included in this study. To complete your study properly, you’ll need to share some of the following details:
- Detailed descriptions of R&D projects undertaken
- Salaries of employees who worked on R&D projects
- Your payroll company
- Titles and job descriptions of the employees who worked on R&D projects
While you will need to provide a lot of information to complete your study, you can use the information gathered to apply for a state R&D tax credit as well.
Do States Offer Tax Credits for Deftech Innovation?
Yes, most states offer an R&D tax credit program that is similar to that of the Federal government. Remember, while a Federal R&D tax credit study is available to any qualifying U.S.-based deftech company, each state has its own requirements.
Acquiring both a Federal and state R&D tax credit could provide you with an impressive financial reward.
Not only can you get R&D tax credits from your state, but typically you can get other types of credit from your home state too. For example, there are California tax credits for businesses that offer incentives for hiring the homeless.
Check in with your state’s department of revenue to learn more about your state-specific credits.
What You Need to Know About Deftech Tax Credits
R&D tax credits and other types of credits incentivize deftech companies to keep innovating. With a Federal R&D tax credit alone, your deftech company could recoup between 7-10% of QRE. That number could rise if you operate in a state that offers an R&D tax credit program of its own.
Learn more about R&D tax credit qualifications when you speak with the Bowers R&D tax credit team today.