R&D Tax Credits Remain Strong Despite Tax Reform

Source Advisors | Source Advisors

January 21, 2021. 4 min read
Since federal research and development tax credits were first introduced into law back in 1981, they have been recognized as a key factor in driving US innovation across a wide range of industries.  As Congress begins to take up the challenge of tax reform in late 2017, I’m regularly quizzed about the future of the R&D tax credit. At the heart of the question is the Republican goal of simplifying the tax code, reducing tax rates, eliminating tax breaks and decreasing the federal deficit.

In June 2016, the House Republicans released a tax reform plan intended to modify the individual income tax code and lower the corporate income tax rate to 20 percent, converting it into a destination-based cash-flow tax. The high-level blueprint for the Republican’s plan is detailed in a document entitled A Better Way – Our Vision for a Confident America, which summarizes the various tax reform objectives that include the elimination of a host of business tax credits. Fortunately, the Republicans as well as their Democratic counterparts agree the R&D tax credit remains a valuable incentive that continues to strengthen America’s technology base while promoting economic growth.

Congressional lawmakers have made their bipartisan support clear for the R&D tax credit, as this excerpt from A Better Way – Our Vision for a Confident America points out:

“This Blueprint will provide a business credit to encourage research and development (R&D). America is a country of innovators and risk takers and historically the United States has been a world leader in technological advances. Today, however, our trading partners are using tax benefits and other incentives to attract research activity to their countries. The work done by Congress last year to make the R&D credit permanent was an important step in ensuring the viability of the United States as a location for R&D activity. The Blueprint will include an R&D credit in similar form so that America will continue to be an attractive place to conduct research. The Committee on Ways and Means will evaluate options for making the R&D credit more effective and efficient.”In my opinion, the R&D tax credit will continue to aid America’s manufacturing and technology companies for years to come. Based on my interpretation of Congress’ intentions, businesses currently relying on the R&D tax credit will likely see, in the next few years, the ‘Regular Credit’ calculation eliminated as one of the two credit computation methods and the ‘Alternative Simplified Credit’ strengthened by perhaps as much as 50 percent.

The federal government has demonstrated its support of the R&D tax credit in late 2015 by making the credit permanent, eliminating the AMT limitation and allowing the research credit to be used against FICA tax with the enactment of the PATH ACT of 2015. The new tax reform measure presently offered by the Republicans and other members of Congress continues to show their support for America’s manufacturing and technology companies.

New Small Firm Cost Seg Opportunities

Cost segregation is a highly beneficial and widely accepted tax compliance strategy utilized by commercial real estate owners and tenants to accelerate depreciation deductions, defer tax and improve cash flow.

By Brian Coddington | 12 April

Can the R&D Tax Credit Be Used to Offset the AMT?

The Protecting Americans from Tax Hikes (PATH) Act of 2015 includes provisions that allow certain taxpayers to offset their AMT liability with the R&D tax credit for taxable years beginning on or after Jan. 1, 2016.

By Alex Pak | 7 April

How the R&D Tax Credit Has Expanded Over the Years

Governments typically incentivize private industry to produce research and development (R&D) as a strategic tool to advance their economies.

By Deb Roth | 8 April

The Nine-Point Plan for Handling §179D

Section §179D can help your commercial real estate clients reduce taxable income and increase cash flow significantly.

By Source Advisors | 24 March

Reconciliation bill likely to have a tax impact on energy-efficient buildings

It’s no secret that climate change is a top priority for the current administration. As part of the hotly debated tax and spending legislation moving through Congress

By Source Advisors | 28 October

How Integrators Can Take Advantage of Incentives and Tax Savings

Integrators who have experienced a dip in business during the pandemic may be able to take advantage of a few lesser known tax credits and income tax deductions.

By Source Advisors | 11 August

Tax incentives for energy-efficient buildings would grow if BBB passes

As part of the hotly debated tax and spending legislation moving through Congress — referred to as the Build Back Better Act — the House proposed a laundry list of investments and incentives for upgrading homes and buildings. The $1.7 trillion BBBA also includes dozens of proposals promoting electric vehicles, energy storage, renewable power and a more dynamic electric grid.

By Source Advisors | 29 December

Subscribe for our newsletter
to stay up to date
Email address
Loading

Related Articles