Article
Four things to know about R&D tax credits for the forest products industry
Dec. 16, 2019 · Authored by Star Fischer, Liddy Steele
The forest products industry is no stranger to innovation over its long history. Substantial tax incentives, such as the R&D tax credit, are available to help support and sustain that development activity for today’s companies.
But first, what is the R&D tax credit?
The R&D tax credit is available to companies developing new or improved products or processes, including software, that result in increased performance, functionality, efficiency, reliability, or quality.
It’s a dollar-for-dollar tax savings that directly reduces a company’s tax liability. There’s no limitation on the amount of expenses and credit that can be claimed each year. If the R&D credit can’t be used immediately or completely, any unused credit can be carried forward for up to 20 years. In addition, previously filed tax returns can typically be amended for up to three years to claim the R&D credit retrospectively, providing an avenue to recoup previously paid taxes.
New or small business may be eligible to apply the R&D tax credit against their payroll tax for up to five years starting in 2016. The R&D credit is available both at the federal and state level, with approximately 40 states offering an R&D credit to offset state tax liability.
To help break down this complex topic, here’s a list of common questions forest products companies have about the R&D credit.
1. How much can a company save with R&D tax credits?
Companies can receive a credit refund of up to 11% of their qualified expenses, depending on a number of factors. Generally, the more a company spends on qualified R&D, the higher the credit they’ll receive, with taxpayers receiving a larger credit if they increase R&D spending year over year.
2. What does the R&D credit apply to?
There are two main types of activities that may qualify for the R&D credit:
- Developing new or improved products
- Developing new or improved processes
With safety, quality, and cost-efficiency top concerns for the industry, many forest products companies are investing in development of new equipment or manufacturing processes as well as developing new products to maintain a competitive position in their markets. The investment in equipment, labor, and materials for development projects not only helps companies keep a competitive edge but could also qualify for R&D credits to offset their outlay of capital.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.