Creating transparency around the research and development tax credit: And why should your company care anyway?

Abstract

Purpose

The purpose of this paper is to describe the basic workings of the research and development tax credit and highlight the interconnection between the credit and strategic implications to research, product development and overall market competitiveness. It explains how this credit can be a hidden and immediate source of cash for companies that are involved in research activities and have invested time, money, and resources to the advancement and improvement of their companies' products and processes.

Design/methodology/approach

The catalysts for this article came from interviews and discussions with scientists, engineers and CEO's of small to mid‐size companies who were unaware of this credit.

Findings

Managers commonly misclassify R&D expenses as something else. For example, specialized computer software that is used in R&D may be misclassified as general and administrative expense. Consultants can potentially save a significant amount of tax dollars by examining client records, interviewing client personnel to gain an understanding to see if reclassification is possible.

Originality/value

The original viewpoint presented in this article suggests that manufacturing, research and development, corporate, and tax strategy are all interconnected. These need to be considered in tandem to optimize the overall effectiveness of the R&D dollars spent.

Citation

Holtzman, Y.B. (2006), "Creating transparency around the research and development tax credit: And why should your company care anyway?", Journal of Management Development, Vol. 25 No. 10, pp. 956-969. https://doi.org/10.1108/02621710610708586