Tax Services

Research Tax Credit Services

Research Tax Credit Services

Capitalize on your ideas

What if you could save hundreds of thousands of dollars annually in state and federal taxes—all thanks to work you’re already doing? Through research and development tax credits, you can. Is your company taking maximum advantage?

Investing in the Future PAYS DIVIDENDS NOW

The Research & Experimentation Tax Credit—commonly known as the R&D tax credit or the research tax credit—is one of the most valuable credits a company can leverage. It returns billions of dollars every year to businesses and represents a dollar-for-dollar reduction of your income tax liability.

Yet many are unaware that their day-to-day operations could qualify for it and provide a source of extra cash—up to 10 percent of annual R&D costs for federal purposes and much more when state credits are factored in.

The Perception Gap
Mention R&D to most people, and they immediately think of a laboratory full of white-coated scientists who work for a biotech or pharmaceutical company. Yet businesses in many different industries routinely do work that qualifies for significant R&D tax credits as they attempt to create products that are lighter, faster, or less expensive. Or more durable, reliable, or precise.

Research tax incentives are broader than many companies realize, applying not only to product development but also to other activities and operations such as new manufacturing processes, environmental improvements, software development, and quality enhancements.

Companies also often invest significant resources to design and build parts and equipment according to customer specifications —while assuming all or most of the risk should they fail to deliver. The costs of those activities also may qualify for research tax credits.

Federal tax credits provide permanent benefits to drive down effective tax rates and generate cash flow and represent a dollar-for-dollar reduction of your income tax liability. You can claim the R&D tax credit in addition to any tax deduction you take for R&D expenses.

Your organization could be eligible for research tax credits if it engages in any of the following activities:

  • Devotes time and resources to creating new or innovative products
  • Improves existing products
  • Develops processes, patents, prototypes, or software
  • Hires designers or engineers
  • Companies in many different industries can qualify for the R&D tax credit, including:
  • Aerospace and defense
  • Semiconductor
  • Software
  • Manufacturing
  • Life sciences, including pharmaceuticals and medical devices
  • Telecommunications
  • Paper and forest products
  • Chemicals and plastics
  • Consumer products
  • Automotive
  • Oil and gas
  • Food processing
  • Entertainment and media
  • Financial services
  • Retail and textiles
  • Construction and engineering

The Four-Part Test
To be eligible for the credit, your R&D expenses must meet each of the following IRS criteria:

  • Uncertainty. You must demonstrate that you’ve attempted to eliminate uncertainty about the development or improvement of a product or process.
  • Process of experimentation. You must demonstrate—through modeling, simulation, systematic trial and error, or other method—that you’ve evaluated alternatives for achieving the desired result.
  • Technological in nature. The process of experimentation must rely on the hard sciences, such as engineering, physics, chemistry, biology, or computer science.
  • Qualified purpose. The research’s purpose must be to create a new or improved product or process, resulting in increased performance, function, reliability, or quality.

Which Expenses Qualify?
Many do, including W-2 taxable wages for employees offering direct support and direct supervision of research, supplies used in research, and certain subcontractor expenses (provided the subcontractor’s tasks would qualify if they were instead being performed by an employee).

Research tax credits can also be retroactive. Depending on when your tax return was filed, you may be able to claim research credits for three prior open tax years. Several other special situations may enable you to take research tax credits even further.



   

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