Research & Development
Tax Credit
The Research and Development (R&D) Tax Credit is an incentive offered both federally and by states to reward companies for investing in innovation. The goal for the incentive is to increase R&D activity in the United States. The credit was initially created by the Economic Recovery Act of 1981 and was made permanent in 2015 by the Protecting Americans from Tax Hikes (PATH Act) in 2015.
Benefits of the R&D Tax Credit include:
- Dollar-for-dollar reduction of federal and state tax liabilities
- Increased cash flow
- Offset payroll tax for certain companies
- Credit can be carried back 1 year and carried forward 20 years
- Claim credit for open tax years - typically 3 years
How to Claim the Credit
Claiming the R&D Tax Credit requires a comprehensive, engineering-based study conducted by specialists in the field. Strong supporting documentation is essential for a successful claim, and engaging experienced experts is highly recommended to maximize the benefit and ensure compliance with all regulatory requirements. An experienced professional will work with the tax preparer to provide the necessary information needed to implement the credit into the tax return.
A FOUR-PART TEST
Qualifying for the Credit
New or Improved
Activity must be to develop or improve a product, process, software, formula or technique
Technological Nature
Process of experimentation must fundamentally rely on principles of physical or biological sciences, engineering, or computer science
Eliminate Uncertainty
Activity must be intended to discover information to eliminate uncertainty concerning the capability, method, or design for developing or improving a process or product
Experimentation
Must demonstrate that there was a process used which included the evaluation of alternatives to achieving the desired result
Types of Expenses That Qualify
Wages
Wages paid to employees who engage in qualified research
Supplies
Specific supplies that are used to conduct qualified research
Contract Research
Contract research amounts paid a 3rd party to perform qualified research or services
Basic Research
Basic research payments made to qualified institutions and organizations
Industries That Can Qualify
- Wide variety of manufacturing
- Engineering
- Architectural design
- Construction
- Software and Technology
- Pharmaceutical
- Telecommunications
- Metal Fabrication
- Chemical
- Oil and Gas
- Tool and Die
Interested in Learning More?
Contact us today to determine eligibility for the R&D Tax Credit and schedule a brief consultation!
