The Research & Development Tax Credit (R&D Tax Credit) is an often misunderstood and highly underutilized federal tax credit. It can significantly impact businesses, but owners don't tend to claim the R&D credit because they either are unaware of it or think it doesn't apply to them.
The R&D Tax credit was enacted in 1981 to stimulate innovation and encourage investment in development in the United States. The PATH Act of 2015 officially made the R&D Tax Credit a permanent addition to the U.S. tax code.
The R&D Tax Credit is a credit on your income tax return, not a deduction. That means, dollar-for-dollar, you can reduce your tax liability and deduct eligible R&D expenses. The credit can be used for all open tax years, meaning the last three years, plus the current year. Additionally, you can carry forward any unused credit for up to 20 years, making the credit beneficial year after year, aiding in improving cash flow and earning power for years to come.
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