6 Common Misconceptions About R&D Tax Credits

income tax

R&D Tax Credit

Riz Malik
May 10, 2023

The Research & Development tax credit can enable businesses to increase cash flow and savings, reduce the Federal income tax rate, and receive Federal and State dollar-for-dollar income tax reductions. Specifically, a wide variety of businesses can potentially offset up to $500,000 in payroll tax liability for qualifying activities.

However, there are many misconceptions about the R&D tax credit that prevent businesses from taking advantage of it. Here are the 6 most common myths:

Myth: The R&D Tax Credit is Only For Businesses with a Large Amount of Revenue

Many people falsely believe the R&D tax credit is only for businesses with a large amount of revenue. However, businesses with a revenue of less than $5 million in the current year are able to claim the credit.

Myth: Start-Ups Can’t Claim the R&D Tax Credit

Start-ups and small businesses can claim the R&D tax credit. If your business has 5 years or less in revenue, you are eligible for the credit (as long as you meet the additional qualifying criteria, which include having $5 million or less in revenue in the current year and conducting qualifying research activities).

Myth: The Business Must Conduct Scientific Research to Claim the Tax Credit

A business does not have to conduct scientific research in order to claim the R&D tax credit. There are a large number of activities that qualify, including (but not limited to) automating or improving internal manufacturing processes, designing tools or fixtures, integrating new equipment, developing financial pricing models, developing data centers, integrating APIs and similar technologies, and many more.

Myth: A New Product Must Be Created To Count as a Qualified Research Activity

This is false. You do not need to create a new product in order for the activity to qualify for the R&D tax credit – improving an existing product, process, or formula can count as a qualified research activity.

Myth: Only Businesses in a Research Industry Can Claim the Credit

The R&D tax credit applies to any industry, as long as the business conducts qualified research activities

Myth: The R&D Tax Credit Can Only Be Claimed For the Previous Tax Year

One of the most significant benefits of the R&D tax credit is it can be claimed for tax years that go back 3 to 4 years.

How GOAT.tax Can Help

GOAT.tax is dedicated towards helping businesses claim the R&D tax credit by providing expert guidance and support. Our team of 50+ R&D tax professionals have an experience of over 350 years in streamlining the R&D tax credit process. Our advanced platform simplifies the complexities involved in claiming the tax credit, allowing businesses to automate the R&D credit process.

continue reading

Common Challenges When Claiming R&D Tax Credits

Although claiming this credit can offer considerable benefits for companies engaged in R&D efforts, the process can be challenging.

read on

No Profits, No Problem: R&D Tax Credits Can Help Your Startup

Running a startup is all about innovation and making the most of your resources. But what if you're not yet turning a profit?

read on

What Happens to Unused R&D Tax Credits?

What happens if you don’t use all your credits in a single year? Don’t worry! The US tax code has you covered.

read on