The Research and Development (R&D) tax credit is a Federal tax incentive that rewards taxpayers for increasing investment in U.S.-based research activities. This credit was first introduced by Congress in 1981 and made permanent on 2015. The R&D tax credit is available to businesses that design, develop, or improve products, processes, techniques, formulas, or software. Correctly calculating and properly documenting the R&D tax credit is critical because it can greatly lower taxes and increase cash flow.
The R&D tax credit is available to taxpayers who incur incremental expenses for Qualified Research Activities (QRAs) conducted within the U.S. While primarily a wage-based credit, the credit is comprised of the following Qualified Research Expenses (QREs):
Research activities must meet the four part qualification test.
The R&D tax credit is primarily a wage-based federal credit, which is worth approximately 6.5% of qualified R&D activities. Thus, a taxpayer with $1M of qualified wages could receive a $65,000 benefit. Many states also offer R&D tax credit that can greatly enhance the value of the study. Further, the credit can often be claimed for prior tax years. Many states also offer the R&D credit which can further increase your credits.
The types of businesses that can benefit from an R&D study is far more expansive than what most people expect. Many of these industries have claimed the credit: Aerospace & Defense,
Electronics, Architecture & Engineering, Food Science, Agriculture, Manufacturing, Automotive,
Pharmaceuticals, Biotechnology & Bioengineering, Software Development, Chemicals, Telecommunications, and many more.
When the R&D credit was made permanent, it was expanded to allow a larger number of taxpayers that have been unable to take advantage of the credit previously.
ICS Tax can prepare all necessary documentation to support the credit, calculate the amount of the credit, and draft necessary compliance. In the event of an IRS audit, we can help support your credit.