The Research and Development Tax Credit is a permanent federal tax incentive meant to stimulate innovation, technical design and manufacturing within the U.S. Most states have a similar tax incentive as well. While the R&D Tax Credit was available since 1981, tax regulations that were finalized in December 2003 significantly increased the types of activities that qualify for the credit.
Companies no longer need to develop a product or process that was new to their industry, it only needed to be new to them. Companies of all sizes and in many different industries can now qualify for these dollar-for-dollar tax credits. Some of the industries that qualify for the credit include manufacturers, tool and die / job shops, plastic mold injection, software developers, architectural and engineering firms, construction contractors, food processors, chemical companies, agribusiness, and apparel/textile companies, among others.
Less than one-third of eligible companies realize they qualify for the R&D tax credit. Also, many of the companies that are taking the credit are not claiming all of the credits to which they are entitled.