Research and development (R&D) tax credits are a great way for businesses to recoup some of the costs associated with innovation. But what happens if you don’t use all your credits in a single year? Don’t worry! The US tax code has you covered.
Carry Forward, Reap the Rewards Later
The beauty of R&D tax credits is that they are flexible. Imagine you have a banner year for innovation, but your tax liability isn't high enough to use all the credits. If this happens, the unused portion can be carried forward for up to 20 years. This means you can claim those credits in future years when your tax burden is higher.
Quick Tip: Check for Payroll Tax Offsets
For qualified small businesses, there's an additional perk. A portion of your R&D credit can be used to offset payroll taxes. If this credit exceeds your payroll tax liability in a specific quarter, it gets carried forward from quarter to quarter, again for a maximum of 20 years.
The Takeaway
Unused R&D tax credits aren't lost, they're simply filed away for future use. This gives you valuable flexibility in managing your tax obligations.
Automated Software vs. Traditional R&D Tax Credit Consulting
GOAT.tax was created to educate businesses on the R&D tax credit and help those who qualify successfully claim it on their own. Our nationwide team has over 350 years of collective R&D tax credit experience, and our mission is to take the guesswork out of this credit so you can focus on your core business.
The Three Types of Research and Development
Businesses should consider claiming the Research and Development tax credit for various reasons, but eligibility must be determined and three types of R&D align with the business's nature.
Common Challenges When Claiming R&D Tax Credits
Although claiming this credit can offer considerable benefits for companies engaged in R&D efforts, the process can be challenging.