Frequently Asked Questions

R&D Tax Credits are available to any business in any industry that performs qualifying research activities.

The R&D tax credit is for taxpayers who design, develop, or improve products, processes, techniques, formulas, or software. It’s calculated on the basis of increases in research activities and expenditures—and as a result, it’s intended to reward companies that pursue innovation with increasing investment.

In order to benefit from R&D, all research activities performed by qualifying companies must be thoroughly documented. Our team of tax-saving experts will create and provide guidance on the needed documentation.

You can claim the R&D Tax Credit by filing IRS Form 6765 with your income tax return. Before you file, you should consult an accountant who will be able to help you determine which adequate documents you should keep during the year to ensure you qualify.

The R&D tax credit can be calculated in two ways: the regular credit method and the alternative simplified credit method. NTG uses both methods, for any given tax year, to see which yields the larger tax credit.

In the regular credit method, the credit can be calculated by 20% of the company’s current year qualified research expenses (QREs) over a base amount.

When calculating these, the base amount must not be less than 50% of the current year’s QREs and the fixed base percentage must not exceed 16%.

First enacted in 1981, the R&D Tax Credit has evolved over time through new legislation, regulations, and judicial precedents that expanded the number of businesses that can benefit from the incentive. Two of the most prominent changes have occurred over the past 20 years. In 2003, the Discovery Rule was removed from the law. This meant that research activities no longer had to be “new to the world”, but instead “new to the taxpayer” – a standard that favors taxpayers. In 2015, the Protecting Americans from Tax Hikes (PATH) Act made the R&D Tax Credit permanent and modified the credit to benefit small and mid-size businesses while also opening up its availability to startups.

Startups and small businesses may be able to qualify for up to $1.25 million ($250,000 each year for up to five years) of the federal R&D Tax Credit to offset the Federal Insurance Contributions Act (FICA) portion of their annual payroll taxes.

Current tax reforms have made the R&D credit more valuable with decreased tax rates. The credit can now be used to offset AMT. And NOL deductions can only offset 80% of taxable income.

The R&D tax credit drives economic growth by encouraging innovation and invention. It can drive profits and help businesses stay ahead of the competition. R&D can help reduce production costs and corporate income tax.