Welcome to the Internet of Things (IoT), where virtual-world capabilities meet real-world needs.
Most of us are already familiar with a number of smart devices. Powerful, sensor-equipped smart phones, for instance, have brought an unprecedented level of connectivity to our daily lives.
The IoT promises to extend sensor technology to all sorts of objects, even those that are not usually associated with the term "smart". From a pacemaker to a coffee machine, everything will be linked together through the Internet.
The bourgeoning of this fully connected world represents a unique opportunity for innovation. Throughout the nation, businesses of all types and sizes are engaged in making the IoT a reality. This article will present the tax credit opportunity available for companies engaged in IoT related R&D activities.
Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:
On December 18, 2015 President Obama signed the bill making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax and startup businesses can utilize the credit against $250,000 per year in payroll taxes.
The IoT can be defined as "the use of sensors, actuators, and data communication technology built into physical objects that enable those objects to be tracked, coordinated, or controlled across a data network or the Internet". In other words, it constitutes a scenario where the physical world becomes a type of information system.
In the term "Internet of Things", the word
"things" includes literally everything and anything: goods,
objects, machines, appliances, buildings, vehicles, animals,
people, plants, soil, and whatever else we may encounter in
our daily lives. All these "things" may integrate the IoT if
enabled with a combination of characteristics, namely,
Once incorporated to the IoT, smart objects
may become part of a multitude of applications, which, despite
virtually infinite possible formats, follow the same logic:
Put simply, in the IoT objects are enabled with the abilities to sense and communicate and therefore become strategic tools for collecting information and responding to it. The following chart presents two broad categories of IoT applications:
Throughout the globe, there are currently around nine billion devices connected to the Internet. Within the next decade, this number is expected to reach at least forty billion. According a recent report from McKinsey, the IoT has the potential to create an economic impact between $2.7 and $6.2 trillion annually by 2025.
The Internet of Things is intrinsically linked to innovation. On the one hand, new products, novel business models, improved processes, and innovative interactions are bound to emerge. On the other hand, groundbreaking technological advances will be necessary before the IoT begins to realize its full potential.
Companies engaged in any type of IoT related innovation may qualify for significant federal R&D tax credits. The following sections discuss the R&D opportunity available both in creating innovative IoT applications and in advancing IoT technology.
Throughout different economic sectors, all sorts of industries can take advantage of the IoT. Similarly, the private sphere will also be fundamentally influenced, as a growing number of smart objects become able to interact intelligently with the physical world. Potential IoT applications are virtually infinite. They will serve a multitude of purposes, which can somewhat be summarized in the following categories:
Even though basic uses of the IoT are already underway, this technology remains on its early stages of adoption. Major challenges must be overcome before the IoT reaches widespread use. Facing such challenges represents a unique opportunity for innovation. Companies engaged in achieving the technological advances necessary for enabling the IoT may be entitled to significant federal R&D tax credits.
The IoT will generate tremendous amounts of data. Therefore, the data management industry must develop new and improved tools to enable the processing of IoT Big Data. The ability to process such data must be linked to the one of extracting meaning from it. For this reason, the predictive analytics software industry will play an important role in creating novel tools that can aggregate and analyze data in order to convey useful information for human decision makers and automated systems.
LogMeln, Inc., a Boston, MA, leading provider of remote services, is engaged in facilitating these tasks. The company has developed Xively, a public cloud specifically built for the Internet of Things. The groundbreaking platform aims at providing the entire infrastructure necessary to accelerate innovation. It gives developers the services and tools necessary to create products and solutions on the IoT.
The price of sensors, actuators, and communication devices is also an outstanding challenge. Innovative processes are necessary to increase the cost-effectiveness of production and to respond to the growing need of smaller, more adaptable and complex systems. Moreover, technology providers must develop shared infrastructures and common standards that will allow for the interoperability of sensors, computers, and actuators.
Intel, world's largest and highest valued semiconductor chip-maker, recently acknowledged the major growth opportunity behind the IoT, which is considered the driver of the next wave of computing. The California-based multinational has set a new business unit denominated "internet-of-things solutions group".
Another technological obstacle is battery life. With the multiplication of connected devices, the use of unconventional power sources that allow for prolonged battery life becomes a must. Ongoing research at the Kansas State University has developed an energy-harvesting radio that draws power from a board made of solar cells from low-end calculators.
Privacy and security are also at the heart of IoT development. The unprecedented level of connectivity will come hand in hand with magnified security concerns. The security software industry must develop innovative tools to neutralize threats of terrorism and hacking in the IoT. Recent headlines have included pacemaker and insulin pump hacks, cars' electronics being taken over remotely, smart meter hacks, not to mention the multiplication of computer worms.
Businesses and policy makers must also stand out to develop new data control and privacy paradigms that fit the emerging IoT. Sharing personal data is a two way street, where benefits (such as 24/7 health monitoring) may encounter significant drawbacks (such as the use of medical information to deny health insurance coverage).
In addition to the previously discussed challenges, the widespread adoption of the IoT also requires innovative efforts from all the organizations willing to take advantage of it. Companies must develop new processes to integrate real-time data flow into operations. The IoT will change the way each and every department functions, generating unprecedented technological and organizational challenges.
It is difficult to conceive all the different ways in which the IoT will affect businesses, economies, and the society. The "Internet of Everything" has brought forward major innovation opportunities, both in enabling IoT development and in creating new applications for it. There is no doubt that the IoT will change our lives. This is the time for innovative companies to say how and when this will happen.
Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.
Jacob Goldman is the VP of Operations at R&D Tax Savers.
Andressa Bonafé is a Tax Analyst with R&D Tax Savers.
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