Texas Set to Gain from the Latest R & D Tax Credits

Following the hearing in January for new rules for the R & D tax credits, the Treasury Department is rolling out plans to loosen the rules on the kind of research that will benefit from the tax credits. Although the administration says that the changes are just clarifying existing rules for the R & D tax credit, tax advisors seem to be very enthusiastic about the changes. The IRS has been under pressure from legal battles for a number of years to expand the standards that are used to establish which research is eligible.

The R & D tax credit expired in December 2013, as many temporary tax credits have, but there has been ongoing work to amend the rules since last September.  There is a push to revive the R & D tax credit, just as it routinely has been in past years.

Assistant Treasury secretary for tax policy, Mark Mazur, said, “The new rules represent an effort to end some of the confusion…” and that they, “are part of our ongoing work to clarify the tax code to provide incentives to businesses that are innovating, increasing our competitiveness and promoting economic growth. They do not expand the definition of research.”

The original R & D tax credit, launched in 1981 by the Reagan administration, was intended to be temporary in order to encourage innovation amidst the fear of Japanese technology overtaking that of the U.S. In the following years, technology has moved on faster than anyone could have imagined when the policymakers came up with the first bill. Different administrations have made adjustments which either tightened or loosened the rules. Defining R & D now and into the future would be too difficult given the fast pace with which technology moves.

Texas is back in business

The R & D Tax Credit is back in Texas after an absence of eight years. The Texas legislature passed House Bill 800 which came into effect on January 1st 2014. The improved State Credit can be claimed at the same time as the Federal R & D tax credit and it will benefit businesses that improve products and services, among others. Most of the rules relating to the State Credit are similar to the Federal R & D Tax Credit. If your company qualifies for the Federal R & D tax credit then it could qualify for up to 50% of that amount via the State Credit.

Large companies benefit the most from both of these tax credits, but reports in the Houston Chronicle say that only 5% of SMEs that could claim the benefit actually do.

If you think that your company could benefit from either the Federal R & D tax credit or the State Credit it would be wise to speak to one of our specialist R & D tax advisors at Texas R&D Tax Credit Solutions. The process can be quite complex and you could be missing out on thousands of dollars worth of savings on your tax bill.