Research and Development (R&D) Tax Credits are tax incentives offered by governments to encourage businesses to invest in innovation and technological advancement. These credits allow eligible companies to receive a dollar-for-dollar reduction in their tax liabilities based on qualifying research and development expenses incurred during the tax year.
The R&D tax credits are designed to support activities that involve the development or improvement of products, processes, or software. Qualifying expenses may include wages for employees engaged in R&D, costs of materials used in the research, and certain overhead costs.
For example, a technology company that invests in developing a new software application may be able to claim R&D tax credits for the salaries of its developers, the costs of testing the software, and other related expenditures. This results in a potential financial benefit that reduces the overall tax burden of the company, thereby enabling further investment in innovation.
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