NewsFlash: R&D Tax Credit Extended in Fiscal Cliff Deal

Jan 11, 2013

In the fiscal cliff deal passed last week, the research and development tax credit, which expired after 2011, was extended through 2013. For most taxpayers, the R&D tax credit rate is either 14% or 20% depending upon their election to use either the Regular Credit or Alternative Simplified Credit method respectively. This is very welcome news for many US taxpayers because the research credit continues to be a helpful incentive that reduces the high cost of innovation and the creative process.  It is also one of the few federal tax incentives that provides a true permanent tax benefit via reducing income tax expense and increasing net earnings.

Taxpayers were not able to record the benefit of the R&D tax credit during the period before it was re-enacted.  Now, they should compute the appropriate amount of tax benefit for 2012 along with the current period.  The total benefit should then be reported in their upcoming financial statements.

Despite the Joint Committee on Taxation estimating the credit to cost $14.3 billion over 10 years, the credit enjoys significant bipartisan support. For more information on how the extension of this tax credit could impact your business, please contact your Hein tax partner.