.png)
R&D Tax Credit
Federal and State Dollar-for-Dollar Income Tax Reduction
Receive up to 15 cents of R&D tax credits for every qualified dollar
Reduce Your Effective Tax Rate
Carry the credit forward for up to 20 years
Perform a look back study to claim unclaimed R&D credits in prior years
Utilize the federal R&D tax credit against payroll tax (applicable to certain startups)
The Research and Development Tax Credit (R&D Tax Credit) was enacted in 1981 to incentivize for American innovation. In 2015 the Protecting American from Tax Hikes (PATH) Act was passed, which not only extended the benefit to startups, but also made the R&D tax credit permanent.
Any US company that designs, develops, or improves products, processes, techniques, formulas or software may be eligible for a dollar-for-dollar reduction of past, present, and future tax liability via the R&D Tax Credit.
Examples of Qualified R&D Industries
Aerospace
Architecture & Engineering
Biotech
Brewery
Construction
Food & Beverage
Pharmaceutical
Manufacturing
Software Development
Winery & Viticulture
Examples of Qualified R&D Activities
-
Developing an innovative product that is new to the market
-
Engineering and designing a new product
-
Research aimed at discovering new knowledge
-
Searching for ways to apply new research findings
-
Designing product alternatives, evaluating product alternatives
-
Significant modifications to the concept or design of a product
-
Designing, constructing, and testing pre-production prototypes and models
-
Engineering activity to advance the product’s design
-
Systems processing modeling, system and functional requirements analysis, integration analysis
-
Experimenting with new technologies, new material and integrating the material to improve manufactured products
-
Engineering to evaluate new or improved specification/modifications in terms of performance, reliability, quality, and durability
-
Developing new production processes during prototyping and pre-production phases
-
Research aimed to significantly cut a product’s time-to-market, aimed to obtain more efficient designs
-
Developing and modifying research methods, formulations, products
-
Paying outside consultants, contractors to do any of the above activities
The Four-Part Test
To be eligible for the credit, your company's R&D activities must meet the IRS Four-Part Test:
Permitted Purpose
To satisfy this test, the purpose of the R&D should be to apply the information discovered to develop a new or improved business component. An improved business component can include a product, process, software, or formula which is to be used internally or offered for commercial purposes. Practically speaking this includes new or improved functionality, performance, reliability, or quality of a product, process, etc.
Elimination of Uncertainty
To satisfy this test, it is necessary to illustrate activities were intended to discover information that could eliminate technical uncertainty about the design, methodology, or capability of development or improvement of a product or process.
Process of Experimentation
To satisfy this test, the business must be able to demonstrate there was a process used which included the evaluation of alternatives to achieving the desired outcome. Examples may include ongoing testing, modeling, simulation, and systematic trial and error.
Technological in Nature
To satisfy this test, the process of experimentation used to discover the information must rely on principles of the physical or biological sciences, engineering, or computer sciences. This ensures that any new information uncovered used a scientifically and approved process and not through other methods.
Estimate your R&D Credit by using our free calculator:
Our team of professionals specializes in identifying and claiming R&D tax credits for businesses of all sizes in a myriad of industries. Our expert guidance and personalized approach ensure that your company receives the maximum benefit from the R&D Tax Credit. We understand the complex regulations and requirements and can help you navigate the process with ease.
