The internet, gaming, and media industries rely on cutting-edge and groundbreaking technology advancements to thrive.
Many of these advancements, even if they aren’t new to the world, could qualify for the R&D tax credit. An often-overlooked opportunity, the R&D tax credit is a significant incentive available to companies that develop new products, software, platforms, processes, formulas, inventions, or techniques.
In fact, many companies in the internet, gaming, and media industries continue to improve their products or processes, which could qualify for this savings opportunity.
COVID-19-Related R&D Credit Opportunities
There’s been a substantial increase in consumer spending in the internet, gaming, and media industry as individuals spend more time at home—including working hours.
In response, the industry has adapted to the new environment by increasing R&D investment to expand product offerings and enhance current products. These offerings could qualify for the R&D credit if they improve the company’s products or processes.
For example, a company could benefit from the R&D tax credit if it designs and develops a new, interactive gaming platform. While this might not be a new concept to the market, it’s new to the company and thus requires a development process to eliminate uncertainties regarding the best method for achieving its design objectives.
What’s the R&D Tax Credit?
Let’s start with the basics. The R&D tax credit is a dollar-for-dollar tax savings that directly reduces a company’s tax liability. There’s no limitation on the amount of expenses and credit that can be claimed each year. If the R&D credit can’t be used immediately or completely, any unused credit can be carried forward for up to 20 years.
In addition, previously filed tax returns can typically be amended for up to three years to claim the R&D credit retrospectively, providing an avenue to recoup previously paid taxes.
New or small business may be eligible to apply the R&D tax credit against their payroll tax for up to five years starting in 2016. The R&D credit is available both at the federal and state level for certain states, such as California.
How Much Can a Company Save with R&D Tax Credits?
There’s no limit to how much a company can claim for the R&D credit. However, there are several factors that can impact tax savings. The amount of tax credit available depends on how many qualified costs a company incurs during a specific tax year. See below for details on qualified costs.