As long as the design and development work is done here in the US, manufacturing of this product can occur anywhere, whether the manufacturing is outsourced or the manufacturing company is your own.

Unlike a tax deduction, an R&D tax credit is a dollar-for-dollar credit; this reduces a taxpayer’s bill by a full dollar for each credit dollar. A six-figure tax credit increases Earnings After Tax by the full amount of the credit. A tax credit that can be used to reduce the taxes to be paid means that much more cash in the company’s bank account.

Because the credits can be claimed in one year and taken in another year, they can be transferred to new ownership. The credits also legitimize a company’s technology. A lot of small companies claim the credit every year because they are looking to be acquired by a larger corporation, and if they have R&D credits on their books it proves they have technology someone else is likely to value.

The Research & Development tax credit is designed to stimulate technological innovation by providing a federal and state income tax credit for taxpaying Employers and Shareholders/Members (S-Corp, LLC, LLP). The Research and Development tax credit allows companies conducting qualified research activities to claim credits up to 13% of qualified research expenses. Even though eligible, the majority of small to mid-size companies do not take advantage of this lucrative tax credit. Simply stated, your company may be eligible to receive a significant tax credit and, in some cases, refunds for these qualified Research & Development Tax Credits. This is a permanent tax benefit and a dollar-for-dollar tax savings. Companies/Shareholders can carry forward unused credits into future years.

It’s not a refundable credit, which means that if the credit is in excess of the tax liability, you cannot get a refund greater than the amount of the tax that is owed. For example, if your tax credit is $25,000 and your tax liability is only $18,000, then you will receive a credit (refund) of only $18,000. The unused tax credits rollover and can be used in future years (up to 20 years for federal purposes).

You can go back to any open tax year, which typically is the prior three years for Federal purposes and four years for California purposes. For example, if you have a December 31 year end and you filed your 2017 tax return on March 15, 2018, your 2017 tax return is open until March 15, 2020.