Research and Development Tax Credits

Why You Should Care

The R&D tax credit is designed to help encourage companies to pursue innovation. With the benefit of both federal and state tax credits for research and development, you could get approximately 20% of eligible R&D costs reduced from your taxes. This can significantly displace your taxes, and some companies can even reduce the majority of taxes for the company.

Can R&D Apply to My Company?

Research and development aren’t only about developing new inventions and patents, it’s much broader than that. The IRS considers R&D as any development to internal use software or process improvements inside your business. Officially, “…research must be undertaken for discovering information that is technological in nature, and its application must be intended for use in developing a new or improved business component.” The keyword is new. If the application, process, or product already exists and you are only adapting it, it does not count towards the R&D credit.

What Counts as R&D?

While there is a bit more complexity to the credits and requirements, two main parts serve as the primary measuring points for R&D tax credit qualification.

First, your research must focus on one of the four sciences (physical, engineering, computer, or biological). Projects centering on the social sciences, arts, or humanities do not qualify.

Second, your research must be attempting to solve some level of uncertainty. This can be difficult to track because research is constantly being performed, so there is a small degree of leniency when determining this factor. Investigating a topic or question that has already been resolved does not qualify.

Don’t Overlook Your R&D

Too many companies are performing R&D within their business without their CPAs utilizing the associated tax cut benefits. Contact Linked Accounting today to get more insights about R&D and to see if your business is missing opportunities to apply for the R&D credit.