We have written a number of times about the advantages of the Research & Development (R&D) Credit. It is a complicated area regarding what activities qualify and how you get benefit. Historically, I have not been overly excited about this credit. Mainly there is a limitation in this law that limitsour benefit to Alternative Minimum Tax (AMT). So, every time we have a client that should be able to benefit, we do a significant amount of work only to receive no benefit (or worse increased taxes due to AMT).
Well, 2010 is an exception and we have had renewed interest in this credit during this current tax season. Basically, when Congress hurriedly passed the Tax Reform Act in mid-December 2010, they modified the R&D Credit for small businesses. In essence, small businesses (those with less than an average of $50 million in sales) can take their unused 2010 R&D credit and carry it back up to 5 years. The best part is that the 2010 R&D credit is not subject to AMT. In lay terms, this means that we can get the full benefit of the 2010 credit without limit. Every credit we have done so far this year has created significant reduced taxes or refunds for our clients.
If you have spent any time or money on pre-production activities in 2010, you need to look at the impact of this new and temporary law. Please do not hesitate to contact us if you have any questions or need any assistance in determining the benefit to you.