What Is the Purpose of the R&D Tax Credit?

The R&D tax credit was first introduced back in 1981 as part of the Economic Recovery Tax Act that was sponsored by Jack Kemp and William Roth. It was expected to be discontinued in 1985, however it has been continuously extended. It continues to be a useful tax credit for a variety of businesses in the United States.

The R&D tax credit is a tax incentive for performing qualified research (not necessarily successful) in the U.S., resulting in a credit to a tax return. The purpose of the tax credit is to encourage investment within the country, helping to give the economy a boost and ensure that America remains competitive with increasing research and development activity taking place globally. The provision of the credit has helped many businesses to invest in developing new products, processes and ideas. The credit is available to large corporations, as well as small- to medium-sized enterprises that could find it difficult to raise capital for R&D projects.

Qualified Research

One of the main problems with the R&D tax credit is the confusion that surrounds the qualification process. Many SMEs are overwhelmed by the R&D planning and preparation processes, finding multiple conflicts that make it difficult to establish whether their business is eligible for the tax credit or not.

Anyone who satisfies the IRS’ 4-part test and substantiates and documents their qualifying research expenses (QRE’s) can qualify for the R&D tax credit. QRE’s are the operating expenses of a taxpayer that form the basis of the R&D credit, which are made up of payroll, supplies and contracted research services. A taxpayer’s QRE’s must satisfy the 4-part test:

 

  1. Technological in nature: Mathematics, Engineering, Computer science, Earth/natural sciences
  2. Improved functionality: Performance (speed), Reliability (capacity), Quality, Cost reduction
  3. Eliminate uncertainty: Capability uncertainty (“Can we do it?”), Methodology uncertainty (“How do we do it?”), Product design (“What is the correct formula?”)
  4. Process of experimentation: Evaluating alternatives, trial & error, scaling-models, testing results, analyze & form new hypothesis

Does Your Business Qualify?

Our chartered accountants are on hand to help you  find out whether you are eligible for the R&D credit, and to help you discover if your research and development contains all of the four elements above. We specialize in  R&D tax claims and have the experience and knowledge to take care of the entire process on your behalf. You can use us in complete confidence, knowing that our accountants will minimize disruption within your financial work flow and provide a quality service at every stage of the R&D tax credit process. Click here to take our online eligibility test. 

What Does This Mean for You?

With our team concentrating on your R&D claim, you have more time to devote to your daily routine, continuing to focus on the day-to-day needs of your business and your research while we work competently to assist you in receiving the vital tax credits that will push your business to new heights of success. We will apply our expertise to finding and reporting your qualifying research expenses and present your case to the IRS in the approved format. Should you qualify, you will receive a financial boost in the form of a deductible tax credit that can support the expansion of your products and services, help you take on research and development teams and support workers, and assist you with the cost of suppliers required for R&D. If we can’t substantiate and report a valid credit for you, we charge nothing. Contact us today for a free-of-cost feasibility study. 

Wind turbines on green grass field