Products Finishing

OCT 2013

Products Finishing magazine is the No. 1 industrial finishing publication in the world. We keep our readers informed about the latest news and trends in plating, painting, powder coating, anodizing, electrocoating, parts cleaning, and pretreatment.

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FINANCIAL FINISHING The R&D Tax Credit: A Worthy Investment The beneft is far greater than the time and efort required to complete a study. By Saqib Dhanani and Lyndsie Lowry The question we hear most often from new and prospective clients is "Will this credit really be worth my time?" There is a common misconception that the benefit of the Credit for Increasing Research Activities (I.R.C. §41, "the R&D credit") may be outweighed by the amount of work associated with completing an R&D study. While it is true that some R&D studies may be more labor-intensive than others, the benefit of the R&D credit is far greater than the time and effort required to complete a study when you have the experience of a consultant familiar with the nuances of the R&D credit. The R&D credit was created with the intent of rewarding companies who take a risk by trying something new. By Number of Credit Claimants by Size of Business Receipts building in two very important features, the value of the credit to companies in the United States has been made invaluable. First, the R&D credit is a dollar-for-dollar reduction of your taxable liability. The second feature is a generous carry provision that allows the credit to be used in years other than the year it was generated. Tax benefits can be either deductions or credits. Deductions are subtracted from your taxable income, which in turn is the number used to calculate your taxable liability. Therefore, for every dollar of deduction, taxable liability is only reduced by a fraction of that dollar. Unlike deductions, credits are subtracted from the calculated taxable liability amount. This means that you calculate the amount you owe in taxes and then subtract the credit amount. Every dollar in R&D credit you claim is a dollar less in taxes you would pay. Practically speaking, this could mean you 2007 pay the bare minimum in taxes. 1,923 Gross Receipts 2009 2008 Under $25,000 1,906 1,721 $25,000 to $99,999 318 312 215 $100,000 to $249,999 293 385 484 $250,000 to $499,999 189 302 244 Carry-Back and Carry-Forward Secondly, the credit was written with carry-back and carry-forward provisions. For the taxpayer, this means that even if you $500,000 to $999,999 254 296 331 were impacted by a bad year and you have $1,000,000 to $2,499,999 1,256 1,386 1,394 no taxable liability, the credit generated in $2,500,000 to $4,999,999 1,138 1,216 1,292 that bad year may be used elsewhere. $5,000,000 to $9,999,999 1,072 1,233 1,170 This carrying feature is important because the credits, at times, can be quite large. $10,000,000 to $49,999,999 2,638 2,583 2,490 Based on statistical data provided by the $50,000,000 to $99,999,999 800 797 706 IRS, the chart below depicts the average $100,000,000 to $249,999,999 809 771 682 credit claimed per taxpayer as catego$250,000,000 or more 1,686 1,734 1,617 rized by business receipts. Taxpayers in the Total 12,359 12,736 12,548 $2,500,000-$4,999,999 range received approximately a $70,000 benefit Average Credit Claimed Per Taxpayer by Size of Business Receipts each year from 2007 to 2009.* 350,000 There are even 300,000 some special rules for the n 2009 250,000 carrying feature that were put in 150,000 n 2008 place to provide for even greater 100,000 n 2007 usefulness. For 50,000 example, the Small Business Jobs Act of 2010 $1,000,000 to $2,500,000 to $5,000,000 to $10,000,000 to $50,000,000 to $2,499,999 $4,999,999 $9,999,999 $49,999,999 $99,999,999 was created to provide economic 100 OCTOBER 2013 —

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