Whether it’s through new products, new tech, or new systems, virtually all businesses need to innovate in order to continue growing. This innovation requires research and development (R&D). However, high costs, prolonged development, and uncertain return on investment can discourage businesses from investing in this department.
Simply put, R&D can be prohibitively expensive for many small businesses. Thus, the R&D tax credit was created under Section 41 of the Internal Revenue Code to encourage businesses to continue innovating.
R&D tax credits allow qualifying businesses to deduct the cost of applicable research and innovation from their taxable income. Originally established in 1981, the research & development tax credit helps numerous businesses save money each year. Federal research and development tax credits became permanent thanks to 2015’s “Protecting Americans from Tax Hikes Act,” also known as the PATH Act.