Understanding Section 41: The Research and Development (R&D) Tax Credit
The U.S. government offers the Research and Development (R&D) Tax Credit under Section 41 of the Internal Revenue Code (IRC)
August 24, 2022
ForSocial:Tax credits do not equal tax deductions, you can claim both for your business. Learnwhy tax credits are more impactful for your budget and how to get the most of your incentive.
At Rebate, we understand that running a business is rewarding and all-consuming. When yourun a startup or small business, it’s tough to find the time and energy to file your own taxes andmake sure you’re claiming all of the deductions and credits you possibly can.
Tax credits are often confused with tax deductions, but they are two separate things.
Deductions decrease your overall taxable income and determine your tax bracket so you mayend up paying less based on the amount of income you're actually taxed on.Businesses canclaim for many normal business expenses and there are even specialized deductions for thingslike at-home businesses.
Tax credits, on the other hand, reduce your final tax bill on a dollar-for-dollar basis. When youclaim a tax credit, you typically can’t claim a deduction for the same expense, but the moneyyou’re saving can go right back into your company’s budget.
For example: let’s say you owe $30,000 in payroll taxes. If you qualify for and claim a $10,000tax credit for research activities and expenses, you can subtract that amount of money directlyfrom what you owe, leaving a $20,00 tax bill.
Also unlike deductions, if you’re eligible for a small-business tax credit, like the R&D Tax Credit,but fail to claim it one tax year, you may be able to carry forward the credit to a future tax year.
Tax credits are very impactful to your business, even more so than deductions, and it’simportant to have experts backing your credit efforts, too. When you work with Rebate’s team ofspecialized tax professionals, you are receiving a personalized analysis of your businessexpenses and activities to ensure the highest, most accurate credit.