R&D tax credit - how does this work? like, sometimes, providing, employees

waldziuchna

If a company typically spends let's say $10 million a year to pay a group of its own employees to conduct R&D, perhaps some third party engineers as well, and maybe for the office space and equipment for these guys, I assume that $10 million is tax deductible like any other business expense? Or is it actually typically NOT tax deductible unless there is a law providing for R&D tax credits? Because I sometimes hear about how America just perpetually renews its R&D tax credit but we should make it a permanent part of the law. And I just wonder, if the R&D tax credit law were to expire, does that mean that $10 million I mentioned before cannot be deducted against taxable income? That doesn't make any sense to me.

Thanks!

RoastBeef

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Edited 1 time(s). Last edit at Saturday, July 9, 2011 at 04:00PM by darkxfriend.

himanshumh

I'm under the assumption you can basically never capitalize R&D expenses, so not really asking a question there.

I'm asking what an R&D tax credit means. If a company spends some money so their employees conduct "R&D" (however that's defined), isn't that a regular business expense and therefore tax deductible? Why does there need to be a separate R&D tax credit?

ayaz_mahmud369

The R&D credit is available as a credit not a deduction. Therefore $1 of expenditures reduces the tax liability by $1.

If you do not meet the credit rules, then it is deductible. This would produce a .35 benefit per $1 of R&D expenditures.

noel

Gotcha, thanks. I assume the tax credit and regular expense deductions are mutually exclusive, or else you'd basically be making money from R&D expenditures?

illusionx

guess it depands, depands on the discription of that R&D exp. and where u wanna put ,under a practice mannar if u ask me,dude