Learn About the Research and Development Tax Credit

Business Service

Learn About the Research and Development Tax Credit

The Research and Development (R&D) Tax Credit stimulates economic growth by encouraging companies to invest in research, innovation and new technologies. It is a special tax incentive aimed at motivating businesses to develop or improve products or processes, regardless of industry, while providing them monetary rewards. The R&D tax credit can help a variety of businesses offset and reduce their income tax liability. 

Recognizing that growing a successful business will eventually require developing new products, technologies and systems, the R&D tax credit was conceptualized to incentivize businesses. This growth is vital to the sustainability of your individual company in addition to the overall economy. The economy requires innovation to support its continuous growth. Running a business is expensive enough with operating, maintenance and payroll costs leaving little or no room for research and development related-costs. Without considering R&D as part of the business plan equation, many businesses fall short of reaching their potential or fail drastically. The R&D tax credit was created for the objective of providing an incentive for businesses to continue innovation efforts.  

The R&D tax credit can be beneficial to qualified businesses offering many attractive features such as: 

  • Decrease their federal and state tax liabilities for the current year in addition to future years. 
  • Increase their company’s market value and cash flow. 
  • The R&D tax credit can lower their business’s effective tax rate.
  • Allow businesses to keep more of their profits. 
  • Enable qualified businesses to deduct the cost of qualified research and innovation from their taxable income.
  • Offset the FICA portion of payroll taxes.

To qualify for the R&D tax credit, a business must demonstrate that their research and development activities meet the following criteria:

  • They are for the purpose of discovering information that is technological in nature.
  • Intended to develop a new or improved business component, such as products, internal-use software, inventions or techniques to be used in your business.
  • They rely on hard science, such as computer science, engineering, biological sciences or the physical sciences.
  • They involve an attempt to eliminate uncertainty. 
  • They use scientific experimentation, including testing and alternatives.

Expenses related to R&D that qualify for the tax credit include:

  • Wages that you pay to employees involved in qualified research and development, or employees who supervise or support those involved in R&D.
  • Supplies used for researching and developing new technologies other than land, property subject to depreciation or improvements to land.
  • Costs paid to a third-party contractor to perform qualified activities for your business, regardless of the outcome or success of that research.
  • Research payments to a qualified education institution or scientific research organization for qualified R&D activities.
  • Costs associated with developing a patent.

Let Start Fresh Tax Relief assist your business claim the R&D tax credit without the headache. Businesses can save thousands through the R&D tax credit but only if they have researched it thoroughly. We have the experience to handle the tax claims process from start to finish while providing the necessary documentation to back up your claim with the IRS. Claiming the R&D tax credit can be challenging. Let us take the guesswork out of this tedious process while you enjoy the benefits of this incentive.