Creativity vs Innovation in R&D

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Is the results of research and development (R&D) derived from creativity or ground-breaking innovation – or a combination of both?

“Creativity” and “innovation” are two words that frequently get pitched in brainstorming sessions or company mission statements. Without a doubt, these principles are highly esteemed in the modern workplace, but do leaders who use the expressions accurately know the difference between them?

The key disparity between creativity and innovation is the focus. Creativity is subjective – it is almost impossible to measure and is about releasing the possibilities of the mind to generate new ideas. Innovation, on the other hand, is completely measurable. Innovation is about implementing adjustments into moderately stable systems to make an idea practical. Thus, an organisation can use innovation to apply its creative assets to propose a suitable solution and acquire a return on its investment.

Therefore, to ensure companies remain competitive in a rapidly intensifying and accelerating technological market, businesses need to develop creativity and turn it quickly into innovation. However, it is an often overlooked fact that the expenditure incurred to bring these innovations to market is potentially available for a tax rebate.

To elaborate, the federal R&D tax credit  is a frequently overlooked tax benefit, with companies often mistakenly believing they don’t qualify. The government lets you deduct the costs of research and experimentation to develop or improve a product, formula, invention, process or technique. While the R&D deduction is relatively simple for small businesses to take, doing additional calculations to claim the “innovation” or R&D tax credit can be more complex but rewarding for entrepreneurs. The credit reduces taxes dollar for dollar, and entrepreneurs can generate the biggest credit by ramping up research activities over time.

Overall, creativity is vital in today’s business world to stimulate new ideas. However, driving business ultimately derives from sifting creative ideas through an innovation process to initiate those ideas into action.  Thus, stressing the importance of leveraging the data that surrounds people, organisations, products, and processes, to drive R&D and build new revenue streams and new commercial models. Indeed, creativity is the price of admission, but it’s innovation that pays the bills.

Creativity and innovation can create new opportunities for your business and allow for the creation of new products or solutions, via research and development. there were a host of tax breaks that Congress included in last December’s tax extenders legislation, the PATH Act. The new rules and regulations outlined in the PATH Act have made it easier for all types of businesses to profit from the R&D Tax Credit. Contact us today to see if you are eligible to claim the R&D Tax Relief.

Where Does The U.S. Rank in Economic Competitiveness?

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Citing a dwindling economic growth to high unemployment rates and stagnant wages, pessimists argue that the United States finest days are in the past. However, are they correct in this assumption?

A recent report from the Council on Foreign Relations, Keeping the Edge, claims otherwise. The report analyzes where the United States ranks in key dimensions of economic competitiveness. The findings reveal that on innovation, which upsurges living standards in advanced economies, no other country is close.

For instance, total US research and development (R&D) spending is higher as a share of the economy than since the 1960’s and, in absolute terms, no other country invests as much in R&D as the United States. In specific, at 2.8 percent of gross domestic product, the United States does spend heavily on R&D, however, major Asian economies – including Japan, Taiwan, and Korea – have ramped up R&D spending. In fact, according to the report, by 2020 China is projected to exceed the United States as the world’s largest R&D spender.

Moreover, the report highlights that of the top twenty universities in the world that generate the greatest consequences on scientific research, sixteen are in the United States. However, the report does find a red flag in the United States economic overview. Funding for public universities has struggled under exceptional financial pressure. If they are deprived of incentives or resources to perform high-risk but hypothetically high-impact research, scientists and academics are not as likely to produce transformative research. In light of this, the report concludes that where the United States deficiencies exist, is also where the government can have the largest part in guaranteeing the United States remains prevailing and innovative for decades to come by ensuring policies are put in place.

Nonetheless, the report reveals positive results in relation to the United State. In particular, the findings highlight that when it comes to scientific breakthroughs and commercial innovations, the United States is leading the way due to a heavy spend in research and development compared to other countries. If you have conducted research and development within your company you may be eligible for R&D Tax Credits. Contact us today to find out if you’re eligible.

How to Calculate The Alternative Minimum Tax (AMT)

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Tax season is over, but if you had to pay the federal Alternative Minimum Tax (AMT), there may still be work to do.

Essentially, the AMT is a separate federal income tax system with its own tax rates, and its own set of rules governing the recognition and timing of income and expenses. In our previous video tutorial, we described more about what the AMT is and how it impacts the R&D Tax Credit.

Now, our latest tutorial outlines how to calculate the AMT. Watch the video on YouTube at: https://www.youtube.com/watch?v=CYi14pGsiUM 

Or alternatively, watch below:

https://www.youtube.com/watch?v=CYi14pGsiUM 

Check out our series so far:

Swanson Reed is a specialist R&D tax firm and has helped many clients across a diverse range of industries. Contact us for more information on how we can advance your company’s market value and boost its bottom line through the Research and Development Tax Credit.

The R&D Tax Credit for the Retail Industry…

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When the subject of research and development (R&D) tax credits is mentioned, images of white coat scientists are often conceptualized. However, those designing and creating those white coats may be eligible for the claim too. In fact, R&D tax credits are a frequently overlooked opportunity for retail and apparel companies.

Furthermore, several businesses in the apparel industry are unaware that they may be eligible for the credits due to the fact they manufacture their products overseas. Nonetheless, these same companies frequently have sample makers or testers here in the United States. Despite offshoring the production of their products in Asia or Europe, a company’s domestic design and development activities may still make them eligible for federal or state R&D tax credits.
Certainly, by capitalizing on these opportunities, fashion and apparel retailers can produce generous tax savings, including generating cash for their past and future investments. To meet the requirements for the credit, a company must endeavour to cultivate or improve the quality, reliability, or functionality of one of its processes, products, or software.  Thus, as defined by the IRS, the R&D credit is essentially an activity-based credit.

In fact, several apparel manufacturers have previously executed qualifying activities. Although aesthetic modifications are not traditionally eligible, activities related to improving a garment’s functionality or performance, for example weather-resistant clothing or dye formulas, may well qualify. In addition, software development, such as e-commerce and point-of-sale solutions, can also be eligible.

Moreover, the use and further development of innovative materials are also likely to lead to further activities that qualify for the R&D tax credit.  An example of a company utilising innovation in the apparel industry is Kusaga Athletic, aka creators of the ‘greenest t-shirt on the planet’. The company spent two years in R&D and have developed and prototyped a compostable, biodegradable shirt that uses less than one per cent of water to manufacture a standard cotton tee. This is exceptionally eco-friendly as it takes 3,000 litres of water to make a single cotton t-shirt and over two billion t-shirts are sold worldwide every year. Hence, due to investing in R&D, Kusaga Atheletic is having a huge positive impact on the effect of climate change.

Consequently, R&D can not only have a positive effect on the environment, but can also increase a company’s competitive edge in an increasingly innovative economy. Thus, organizations that take advantage of these incentives to drive innovation can create tax savings for their own business and assist in generating growth for their national issues, business models and interactions with customers, suppliers and intermediaries. If you believe your company is undertaking qualifying R&D activities, contact one of our specialists today to find out if you could benefit from R&D credits.

What is the Alternative Minimum Tax?

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Curious what alternative minimum tax is?

Watch our latest presentation to discover how the alternative minimum tax impacts the research and development (R&D) tax credit.

Watch on YouTube: https://www.youtube.com/watch?v=SXQv5379oRU

Want more quick video tutorials like this?

Check out our series so far:

Swanson Reed is the largest specialist R&D tax credit consulting firm in the United states.  We solely provide services related to the R&D credit and are the only firm in the United States to offer free live webinars on a daily basis. Click here for more information.

Gateway to Growth: R&D in the Oil & Gas Industry

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oil-field-76302_960_720From operating our vehicles to warming our homes, oil and gas is one the most commonly used and important commodities in the world. In 2014, oil provided approximately 38% of the world’s energy needs and is directly responsible for about 2.5% of world GDP. Indeed, oil and gas is a leading component of the world’s energy mix, a trend that will no doubt endure for many years to come.

However, in an increasingly technologically-driven world, the oil and gas industry is changing in two fundamental ways. Firstly, with majority of the world’s ‘easy oil’ already exhausted, the importance of utilizing sophisticated technologies to find and produce tomorrow’s hydrocarbons is becoming increasingly imperative. Secondly, high profile disasters such as Shell’s Brent Spar Incident in 1995 or the recent Deepwater Horizon accident (Perrons, 2014), has resulted in a significant shift in the expectations of the oil and gas industry in regards to safety, environmental stewardship and human welfare. Thus, in the face of these challenges, technology and innovation will play a pivotal role in the success or failure of the future of oil and gas firms.

Generating the question, how can oil and gas companies succeed in an industry where supply is limited and expectations are high? Ultimately, the oil and gas economy in the United States is at a critical juncture and innovation is what is going to push the economy forward.

Without a doubt, investing in R&D to create new and improved technologies is vital in enabling the industry to meet global energy demand. Moreover, with traditional forms of energy becoming harder to find, investing in new technologies will be vital in meeting the needs of an increasingly urbanised population and to combat environmental challenges in the decades ahead.

In addition, several companies may already be partaking in R&D activities and may not be aware of how the federal and state governments seek to support them through the Research and Development Tax Credit. Oil and gas companies are eligible for this credit, which presently values at almost 10 billion dollars, for work activities that are often already being conducted.

Below are some examples of qualifying research activities in the oil and gas industry:

  • Offshore structure design
  • Helidecks
  • Development and testing in a variety of areas including shutdown services, plug and abandonment solutions and turnaround
  • Plant design regarding safety, chemicals, pollution control and pressurization
  • Wastewater solutions
  • Designing and improving drilling

If you would like more information, Swanson Reed is hosting a free webinar on May 10th to discuss the benefits of the R&D tax credit for those in the oil and gas industry. Our specialists will be covering the basics of the credit, exploring an oil and gas case study and detailing the qualifying activities in the oil and gas industry. Could the R&D Tax Credit help your business?

If you’re interested in finding out more, register for our free webinar on EventBrite:
https://www.eventbrite.com/e/free-webinar-how-the-rd-tax-credit-can-benefit-the-oil-and-gas-industry-tickets-24977534478

Contact Swanson Reed’s R&D tax specialists today if you would like to know more about the R&D tax credit.

Texas Leads in Tech Employment

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The Texas economy — long a standout and a major source of Lone Star bragging rights — has gained national attention as the “Texas Miracle.” Over the past eight years alone, Texas’ annual job growth has exceeded the nation’s growth by a factor of four, with Texas adding jobs at a robust 2 percent, even in the face of a severe recession. Furthermore,  despite the downturn of Texas’s key oil and gas industry, other sectors are continuing to boom.  In particular, the technology sector in the state is experiencing persistent growth.

In fact, Texas ranks only second to California in number of technology jobs in America. Aside from popular firms like Google, Apple, Dropbox and Oracle — which all recently constructed or extended major campuses in Austin — nearly two dozen California tech companies also repositioned to Texas or opened outposts there since 2014.

Notably, Texas is home to more than 585,000 technology workers across 34,100 businesses. The state’s tech community continues to enjoy rapid growth, adding 13,800 IT positions within the last year. In addition, tech employers in Texas spend more than $58 billion on payroll annually, with IT employees earning nearly double the state’s average earnings at $99,700 annually. Likewise, Texas leads the country with respect to employment in a variety of sectors within the technology sector, including telecommunications, computer and software wholesaling and electronic repair.

Furthermore, due to the nature of the work involved in the IT sector, companies engaged in any type of technology innovation may qualify for significant federal and state research and development (R&D) tax credits.  The Research and Development (R&D) tax credit provides an estimated $10 billion in annual tax savings for U.S. companies; however the credit remains under-claimed by the majority of qualifying businesses. In fact, the Wall Street Journal estimates that a mere 5 percent of qualifying companies claim the credit. Bearing in mind the broad application of the credit and recent changes to the eligibility criteria, the R&D tax credit could be a huge game changer for companies in the IT sector.

It is important to note that the eligibility for the credit is much vaster than assumed and the credit’s definition of “R&D” is more expansive than just white coat research taking place in a lab. In effect, if you are making a product or process faster, cheaper, greener or more efficient — counting nearly all software and technology development done in the U.S. — then you may qualify.

Contact Swanson Reed today if you would like to know more about how the R&D Tax Credit works and if you’re eligible.

The Impact of Research and Development on Job Creation

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Since 2008, the labor participation rate in the United States has fallen from a high of 67.3% in 2000 to 62.6% today. In light of these figures, what role does research and development (R&D) have on employment – does it increase or decrease the labor market?

To begin with, long-term investment in R&D is a growth strategy, not just for a company, but also for the entire country. Essentially, American businesses of all sizes depend on research and development (R&D) to create new and better products and services that allow them to grow and meet the needs of their customers. Furthermore, for the United States to remain competitive in the global marketplace, an investment in R&D that keeps businesses growing, innovating, and hiring employees in the U.S is required.

However, rather than investing in new technologies, materials, and processes that can help a company grow in the long-term, many companies prioritize immediate profits instead. This can ultimately lead to companies cutting jobs, merging or outsourcing.

In contrast, there have been numerous research studies into how R&D investment helps develop new products and knowledge that drives growth, creates jobs, and improves the national welfare. For instance, a recent study by Huo (2015) revealed that each 1 percent increase in R&D expenditure in the United States raises its employment rate by 0.38 percent. Earlier research by Bogliacino and Vivarelli (2012) also found that R&D expenditure, which fundamentally fosters product innovation, has a job-creating effect.

Nonetheless, access to finance remains a key bottleneck for companies  that are undertaking research and development. As a result, majority of the governments around the world incentivise start-ups to undertake R&D activities through tax breaks. In the United States, the government offers a federal Research and Development (R&D) tax credit and this tax scheme can lead to serious savings on firm’s investments. In fact, 70 percent of credit dollars are actually used to pay the salaries of R&D workers in the U.S.

Moreover, in December 2015, the federal R&D tax credit was made permanent by The Protecting Americans from Tax Hikes Act of 2015 (“PATH” Act). Apart from instilling confidence in US businesses to invest in R&D, the PATH Act included two new provisions that will make it easier for startups and small and medium-sized businesses to immediately benefit from the R&D tax credit.  A tax professional, such as Swanson Reed, with R&D tax credit expertise can assist businesses with qualifying for and claiming the credit. Contact us today to find out if your business could benefit from the R&D tax credit.

R&D Tax Credits Webinar

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This 45 minute webinar looks at teaching companies how to claim the R&D tax credit here in the United States.

Does your company…

  • Design, engineer or manufacture its own products?
  • Look to improve the functionality, performance or reliability of  products?
  • Create new or improved processes in order to make things better, faster or cheaper?
  • Develop protoypes or computer generated models?
  • Develop software, technology or other intellectual property?

If you answered yes to any of the previous questions, your company most likely qualifies for the R&D Tax Credit. Join our specialists as they discuss the details of claiming the R&D Tax Credit and the financial benefits for your business.

Watch below, or alternatively watch on YouTube at: https://youtu.be/aWEyRPohYcs 

Swanson Reed is a specialist R&D tax firm and has helped many clients across a diverse range of industries. Contact us for more information on how we can advance your company’s market value and boost its bottom line through the Research and Development Tax Credit.

Do Companies Need to Reassess Their Innovation Execution?

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To execute innovation effectively, companies need to adopt new approaches to innovation, learn from their past mistakes, and set reasonable goals that they can actually achieve. However, a new Accenture survey finds that U.S. companies are struggling with various innovation pursuits – continuing a problem they have been grappling with for the past three years.

Specifically, the survey of executives and managers within 500 U.S. companies divulges that six in 10 (60 percent) said their companies do not learn from past mistakes. This is virtually double the 36 percent who self-confessed to this three years ago when Accenture last piloted a comparable survey.

In fact, approximately three-fourths (72 percent) indicate their firm’s frequently oversight opportunities to exploit underdeveloped regions or markets, versus 53 percent three years ago.  Additionally, more than two-thirds (67 percent) consider their companies as risk averse, a large increase from 46 percent publicized in the preceding survey.

Furthermore, the survey demonstrates that 82 percent disclose they do not differentiate their innovation approaches between incremental versus large-scale transformational change – meaning they use a sole “one-size-fits-all” methodology to accomplish different objectives.

Notwithstanding their companies’ innovation shortcomings, respondents are more certain on disruptive innovation than they were three years ago.  For instance, 84 percent said they believe innovation is key for their long-term success compared with 67 percent three years ago.  The same percentage of respondents – 84 percent – said they are looking for the “next silver bullet,” meaning a market-defining innovation.  Creating new products is a priority for almost half (47 percent) of respondents, an increase of 20 percentage points from three years ago.

However, just how do companies create this innovation within their own company? One way of utilizing and enhancing innovation within a firm is by investing in research and development (R&D).  Both economic theory and empirical analysis emphasize the vital position of research and development (R&D) in economic growth and innovation. R&D – which may take the structure of basic research, applied research or experimental development – fundamentally encompasses “creative work undertaken on a systematic basis to increase the stock of knowledge… and the use of this stock of knowledge to devise new applications” (OECD, 1994).

Due the contribution of R&D to productivity growth, economic performance and the achievement of social objectives, governments do have a role in encouraging the appropriate R&D levels and expenditures. In the United States, companies are granted R&D tax credits, which are tax incentives for performing qualified research (not necessarily successful) in the U.S., resulting in a credit to a tax return. Essentially, the government lets you deduct the costs of research and experimentation to develop or improve a product, formula, invention, process or technique.  Bearing in mind the broad application of the credit and recent changes to the eligibility criteria, the R&D tax credit could be a huge game changer for companies seeking to innovate. If you want to learn more about R&D tax credits, contact a Swanson Reed specialist today for further information.