The U.S. Research and Development (R&D) Tax Credit was created in 1981 as an incentive for businesses to take risks and undergo research activities to develop or improve their products, processes, or software. This tax incentive that was introduced through the Economic Recovery Act of 1981 offers reimbursement for business activities and resources that were utilized during the research.
To this day, many companies have failed to take advantage of this lucrative tax credit in the past simply because they weren’t aware that they qualified. Due to a 2015 provision, more companies than ever are able to benefit from the R&D tax credit for research activities they’re already doing.
Despite the previous notion that R&D tax credits are only applicable to companies in the high-tech, biotech, and pharmaceutical industries, the credit is available to any business that performs qualifying research activities. Businesses are no longer required to strictly develop a product or process that is unique to their industry; it only needed to be unique to them.
Although a wide variety of businesses qualify, less than 1/3 of companies utilize the tax credit, and those who do, often do not reap the maximum amount of credits that they’re entitled to through their State and Federal R&D Tax Qualifications. For more details on the R&D State Tax Credits, click here.
National Tax Group assists companies of all sizes and industries in obtaining R&D credits by providing reliable documentation that will withstand any level of IRS and state authority scrutiny.
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 the needed documentation.
What Qualifying Activities Could your Business be Taking Advantage of?
If you are not sure if the activities you want to claim to qualify your business for the R&D tax credit, National Tax Group will be able to give you a quick and free assessment to make it easy on you. A few examples of activities that qualify are:
- Creating New or Improved Products or Formulations
- Enhancing the Functionality of Existing Products or Formulas
- Creating New or Improved Processes within Production or Execution
- Assisting Customers with Troubleshooting Technical Issues
- Creating New or Enhanced Software to be Used or Sold on the Market
- Applying for Patents and Prototype Development Costs
Let Us Do the Hard Work
- Perform an assessment in order to thoroughly understand how your company develops its products, processes, or software
- Prepare detailed written claims that will also benefit future claims
- Perform a feasibility analysis to calculate the actual cost of research and development
- Provide assistance with all tax forms and return preparation
- Document the eligible expenses and activities
- Assist & manage exams and appeals
- Calculation review
- Cost review
- Future planning
- Examinations appeal and support
Do You Pass the R&D tax credit Four-Part Test
Eligibility for the R&D tax credit depends heavily on research activities passing the 4-Part Test, created by the IRS. The 4-Part Test examines the nature, process, purpose, and uncertainty of the research activities being performed.
The IRS established criteria consists of:
- Purpose: The research is done to improve the quality, function, or reliability of a process or product.
- Process: The research activities must involve stimulation, logical trial and error, assessing alternatives, and refining hypothesis.
- Uncertainty: The qualified activities must identify information to remove ambiguity in the development or improvement of a production process.
- Nature: The research done relies solely on physical sciences, biological sciences, computer sciences, or engineering.
What activities meet this 4-Part Test?
There are a wide range of activities that can help your business pass the 4-Part Test. Here are some examples of qualifying research activities:
- Testing of new technology or concepts in your industry
- Creation of models or prototypes
- Productions of new, or improved versions of products, systems or formulas
- Developing or applying for patents
- Adding in equipment that improves upon a process
- Developing new software
- Designs for LEED/green initiatives
- Environmental testing
- Concept and designing of HVAC
Your National Tax Group qualified R&D tax credit expert can help you determine if your business activities meet the necessary criteria of the test by conducting a tax credit study. You can find out more information on how to get your personalized report here.
Learn about qualifying companies that are eligible to obtain R&D tax credits:
The R&D tax credit is available for a wide variety of industries. To learn more about how your specific industry can qualify, see the resources below for more specific details.