Research and Development (R&D) Tax Credit
The Research and Development (R&D) Tax Credit is a tax incentive designed to encourage businesses to invest in innovation and technological advancement. It allows eligible companies to receive a credit against their federal and sometimes state income taxes for qualified research expenditures.
Qualified research expenditures typically include wages for employees engaged in R&D, costs of supplies used in the research process, and contract research expenses. The credit is aimed at reducing the financial burden of R&D activities, thereby fostering growth and competitiveness in the marketplace.
For example, a software development company that spends $100,000 on employee wages and $20,000 on materials for a new product may qualify for an R&D tax credit based on a percentage of these expenses, resulting in a significant tax savings that can be reinvested into further innovation.
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