Congress Extends Research & Development Tax Credit Through End of 2007
DENVER, Dec. 13 /PRNewswire/ -- As businesses near the end of their
fiscal year, they should consider recent changes in the federal R&D Tax
Credit laws that may apply to their day-to-day business activities.
Congress voted on December 9 to pass H.R. 6111 to enhance and extend the
R&D tax credit through the end of 2007. Businesses not taking advantage of
the R&D tax credit may regret leaving significant money on the table.
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The R&D credit encourages investment that over the long term can lead
to the development of new, more cost-effective, and more efficient products
and services. Before 2001, these tax credits primarily benefited Fortune
500 companies, but now apply to a broad range of small to medium sized
businesses, primarily in the manufacturing, engineering, architectural,
medical science and information services industries.
While middle market companies constitute a significant percentage of
businesses registered in the United States, they account for a
disproportionately smaller percent of R&D tax credit claims. Research and
development expenses typically account for a larger percentage against net
sales in smaller companies; the impact of the credit may therefore be
significantly greater for their bottom line.
Business may qualify for credits for activities that historically have
been considered simply as "the cost of doing business." The credit applies
not only to product development efforts, but also to business process
improvements. Examples of a company's activities that qualify for the
credit include efforts to make new, lighter, stronger, cheaper and more
reliable products, or development of more precise, economical or versatile
processes.
These credits apply not only to the current tax year, but can also
generate significant refunds of previously paid federal income taxes for
open tax years.
"Axiom identified a significant tax savings which we were able to
reapply to our business growth efforts," said Vince Forgione, a tax
accountant for Snyder's of Hanover, an Axiom client in the food
manufacturing industry. "The credit boosted our bottom line significantly
in 2006 and we can continue evaluating our eligibility for future filings
as well."
Research and development expenses as a share of net sales varies
significantly from industry to industry, but typically range from 5% to
over 35% for the companies most eligible for these credits.
The Internal Revenue Service considers four key criteria for business
activities to qualify for the R&D tax credits:
* Research that intends to eliminate uncertainty
* Uses a process of experimentation to remove uncertainty
* The activity must be technological in nature
* It must relate to a new or improved function of a process or product
"It's important for businesses to check their eligibility for the R&D
credit. It's never too soon to evaluate whether the credit applies to a
particular business," stated Larry Nealy, Managing Partner of Axiom
Solutions. "No two companies are alike, which is why our expertise and
methodology effectively apply the requisite focus to identify which
specific business activities qualify for the credit."
The credit a business can receive depends largely on the amount of
qualified R&D costs incurred by the business, such as wages, materials and
supplies, and contracted research expenses. Like many other areas of tax
law, the definition of qualified R&D expenses is not always clear.
Factoring the numbers can challenge even the most sophisticated businesses
and their CPA firms, creating the demand for more specialized tax credit
services firms such as Axiom.
Tax credits also offer businesses a new avenue for better financial
planning and saving money in the years ahead. The immediate recovery of
credits for current and open tax years may boost the bottom line for the
current tax year, but cumulative future savings can provide longer term
benefit through improved project and process management of credit related
details.
Axiom Solutions is a leading Research and Development Tax Credit
services firm headquartered in Denver, CO with offices in fifteen other
cities nationwide. Founded in 1996, Axiom has helped hundreds of companies
recover millions of dollars in R&D tax credits. For more information on
Axiom Solutions, please visit http://www.axiomsolutions.com
SOURCE Axiom Solutions
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CONTACT:
Nick Kromenacker of Axiom Solutions,
+1-303-758-7130, ext. 1010, nickk@axiomsolutions.com
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