Express Guide to the R&D Tax Credit

coins-948603_640In the United States there is an erroneous belief that research and development (R&D) is only advantageous to large corporations. However, a business does not have to be conducting rocket science to qualify; in fact, any firm, large or small, can benefit from the R&D tax credits.  Moreover, most states have their own R&D tax credits which can be coupled with the federal incentive to maximise tax cash backs simultaneously. In light of the above, we’ve abridged the basics of the R&D tax credit below into three main sections.

Determining if you are qualified for research & development tax credit

There is a four-part test by the IRS which will articulate if the research that you have completed or are undertaking qualifies. Firstly, research that is completed for a precise purpose may qualify for tax credit. Secondly, research that is undertaken to eradicate uncertainty also qualifies. Thirdly, research that is completed following a established experimentation process, and fourthly, research done that is technological in nature will also qualify for R&D tax credit.

What does not qualify for research & development tax credit?

Research which is completed after a product or service has previously been commercially launched; research done after the production of a specific component; research done in order to replicate a prevailing component of the business; and reverse engineering, among others.

Determining expenses which qualify for tax credit

These expenditures which may be eligible for tax credit comprise the salaries you pay for employees conducting research in-house; the purchase of supplies that include tangible property (but not land); contracts for research done by a third party/parties; and other basic payments related to research.

The next step is determining the calculation of the credit you can anticipate to obtain. This step is more complicated and you may wish to seek advice from a specialised R&D tax specialist. Texas Tax Credit provides expertise to a wide range of industries and can help companies recognise the impact of their research and development activities, or if they are eligible. Contact us today if you want to learn more about the R&D tax credits.