R&D Tax Credits

Statutory Criteria:

Do I Qualify?

 This lucrative tax credit is available to

any size business in any industry.

What matters most is determining whether you have qualified activities and expenses that pass the four-part test from IRC § 41.

There are many factors to determining if you are eligible,

but this four-part test is a good place to start the conversation:

1. Permitted Purpose

Are you developing something of value?

You must attempt to create or improve (by enhancing functionality, performance, reliability or quality) one or more of the following *items that you intend to sell, lease, license or use in your business:

Product

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Process

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Formula

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Invention

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software.png

Software

Technique

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* See exclusions below. 

2. Elimination of Uncertainty

Figuring out the improvements you intend to make:

Any time you set out to make or improve something, you're naturally going to have doubts. In the case of the R&D credit, you must have one or more of these areas of uncertainty:

Capability.png

Capability:

CAN we

make the improvements?

Methodology.png

Methodology:

HOW are we going to make the improvements?

Appropriateness of Design.png

Appropriateness of Design:

WHAT is our

finished item

going to look like?

3. Process of Experimentation

How did you overcome those doubts?

Whether as simple as trial and error or as complex as the scientific method, your experimentation was designed to test and analyze alternatives and come to a conclusion of a finished product, process, formula, invention, software or technique. You used one of the following methods:

Trial and Error

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Testing or Modeling

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Evaluation of Alternatives

Simulation

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4. Technological in Nature

Was your process of experimentation based on science?

It must have been based on hard science, such as one of the following:

Physical Science.png

Physical Science

Biological Science.png

Biological Science

Computer-Science.png
Engineering.png

Computer Science

Engineering

What Doesn't Count?

The following activities are excluded from the R&D tax credit:

  • Research conducted after beginning commercial production of the business component

  • Adaptation of existing business components

  • Duplication of existing business components

  • Reverse engineering

  • Surveys, studies, activity relating to management function/technique, market research, routine data collection, or routine testing/quality control

  • Foreign research conducted outside the United States and its territories 

  • Research related to social sciences, arts, or humanities

  • Research funded by any grant, contract, or another party

It's tricky to determine on your own whether you qualify. Many business mistakenly think they aren't eligible 

and miss out on six-figure tax credits.