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Four things to know about R&D tax credits for software companies
Sept. 23, 2021 · Updated Aug. 29, 2023 · Authored by Travis Riley
There’s no shortage of innovation in the software industry, making it a natural fit for R&D tax credits. However, improperly calculating and claiming these credits can have consequences — IRS penalties levied by federal and state tax authorities.
What is the R&D tax credit?
The R&D tax credit is 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 a company can claim each year.
If the company can’t use the R&D credit immediately or completely, they can generally carry that over to prior or future years.
In addition, companies can typically amend previously filed tax to claim the R&D credit retrospectively, providing an avenue to recoup previously paid taxes.
New companies may be eligible to apply the R&D tax credit against their payroll tax during their start-up years. The R&D credit is available both at the federal and state level, with nearly 40 states offering an R&D credit to offset tax liability.
Common questions on this topic follow.
The R&D tax credit is 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 a company can claim each year.
If the company can’t use the R&D credit immediately or completely, they can generally carry that over to prior or future years.
In addition, companies can typically amend previously filed tax to claim the R&D credit retrospectively, providing an avenue to recoup previously paid taxes.
New companies may be eligible to apply the R&D tax credit against their payroll tax during their start-up years. The R&D credit is available both at the federal and state level, with nearly 40 states offering an R&D credit to offset tax liability.
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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.