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
Process
Formula
Invention
Software
Technique
* 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:
CAN we
make the improvements?
Methodology:
HOW are we going to make the improvements?
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
Testing or Modeling
Evaluation of Alternatives
Simulation
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
Biological Science
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