Finance

Five Reasons for Your Business to Use the R&D Tax Credit, According to One Expert

Funding innovation helps businesses maintain a competitive edge in an ever-changing marketplace.

Malcolm Hong May 30, 2019

Innovation is a competitive advantage for every business, but research and development is often a difficult and expensive process. 

According to Smith Miller, CEO of Strategic Tax Solutions, business owners can support innovative activities through the little-known Research & Development Tax Credit. Because of its specialized nature, even many accounting firms are unaware of how the R&D Tax Credit may help businesses save anywhere from thousands to millions of dollars in taxes, according to Miller. 

The Idaho Business Resource Center organized a seminar at Zions Bank’s Idaho headquarters earlier this year, where Miller provided five compelling reasons why qualifying businesses may want to use the R&D Tax Credit. As always, consult your CPA or tax advisor for more information.

Reason #1 to Use the R&D Tax Credit: It boosts your bottom line and creates permanent tax savings

Miller’s client Ryan Gray, co-founder of SGW Designworks, qualified for $100,000 in tax credits based on his $2 million of business. Larger companies have even more to gain from the R&D Tax Credit. Miller shared that on average, his clients with over $13 million in annual revenue saved up to $1.5 million in tax credits.

Reason #2 to Use the R&D Tax Credit: Your business may be more qualified than you realize

“The R&D Tax Credit is often overlooked, but it’s usually the most fun tax conversation a business can have,” said Miller. “Many of my clients are surprised to learn how their regular business activities qualifies them to save thousands of dollars through the tax credit.” 

Common qualifying activities include developing or improving products, building and testing protypes and models, developing new or improved software applications and testing new concepts.

Reason #3 to Use the R&D Tax Credit: Innovation is a major competitive advantage

“Companies that don’t innovate, stagnate,” said Karen Appelgren, director of the Idaho Business Resource Center. “It’s mission critical for business owners to innovate and stay relevant in the face of increased competition.”    

Innovation helps businesses stand out from competitors, meet customer needs and continue to scale. According to consulting firm McKinsey, 84 percent of executives say that innovation is important to their growth strategy. 

Reason #4 to Use the R&D Tax Credit: It provides a valuable boost to small businesses and startups

Small businesses and startups often have limited budgets, making it important to leverage all financial advantages. Startup companies that haven’t yet incurred any income tax liability may use the R&D Tax Credit against their payroll tax. Additionally, businesses with less than $5 million in gross receipts may claim the credit against their alternative minimum tax liability.

Reason #5 to Use the R&D Tax Credit: It rewards effort, not discovery – and it may be used retroactively for up to three years

Even if a company’s R&D efforts was unsuccessful or wasn’t incorporated into a final product, the work still qualifies for the tax credit. Additionally, companies may go back up to three years to claim the credit for past qualifying activities.

If you’re an entrepreneur looking for ways to improve your business, visit with leaders at our Idaho and Utah Business Resource Centers or contact one of our Zions Bank Business Banking relationship managers today.

Malcolm Hong is the Public Relations officer for Zions Bank in Idaho.

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