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Research Credit Awaits Renewal

The research credit is still not a part of the permanent tax code and as such, taxpayers are still anxiously awaiting Congressional approval amid an IRS warning that further delays could result in problems as filing deadlines quickly approach. Based on the projected budget for the package of 50+ tax breaks for taxpayers, the research credit (a.k.a. the Credit for Increasing Research Activities) has been ranked 2nd in terms of budget value at $182.6 B for the next 10 years.

In years past, there have been calls for the government to make the credit a permanent part of the tax code, but no real push has been made to progress this cause. Instead, like the 50 other credits awaiting approval, it is still a technically a temporary tax credit which needs to be renewed regularly. Unfortunately, the 30+ years of history that we’ve seen pass us by with continued approvals does not seem to underscore the need to make the transition from temporary measure to permanent feature.

Still, the credit is one of the biggest benefits being only overshadowed by the controversial Bonus Depreciation which has been a significant tax break to big businesses, but has not had very positive press. Proponents argue that it does much to push innovation and expansion efforts being spearheaded by taxpayers, but opponents see it as a handout designed to benefit business and further undercut any tax revenue generated by US-based taxpayers.

Unlike the shaky and partisan history seen with the Bonus Depreciation issue, the R&D tax credit enjoys full bipartisan support. Every year, legislators on both sides of the aisle make a push to rekindle the debate about making it a part of the permanent tax code. The truth of the matter is that while Bonus Depreciation is seen as a benefit that only goes one way, the R&D credit actually evaluates not only efforts to expand facilities through large asset development, but also actually targets activities that are R&D related.

Regardless of how the debate plays out, we can be sure that some form of the credit will be passed with or without all the changes that are finally making the credit more accessible to companies that actually need it. In a previous post, we explained what changes to the research credit are being made.

Will Chang

William Chang is a Managing Director at R&D Incentives Group with more than 13 years of experience whose primary responsibilities include providing tax credit consulting services to CPAs and their clients, managing RDIG’s relationship with its referral partners, and managing active audits. William has extensive knowledge of federal and state tax credits and incentives and is a frequent guest speaker for CPA firms. Prior to joining the R&D Incentives Group team, William founded The Enterprise Zone Company, a tax credit consulting firm based in Southern California.

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