Specialty Tax Group

Research & Development Tax Credits

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Research & Development Tax Credit

The Research & Development tax credit is for businesses of all sizes that designs, develops, or improves products, processes, techniques, formulas or inventions. In fact, if a company has simply invested time, money, and resources toward the advancement and improvement of its products and processes, the time involved will likely qualify for the R&D tax credit.


The R&D Tax Credit program was added to the U.S. Internal Revenue Code in 1981 through the Economic Recovery Tax Act of 1981 as a temporary provision. The RTC program had most recently expired on December 31, 2014. A tremendous paradigm shift to the RTC program was made possible through the PATH Act which not only renewed the RTC retroactively for all of calendar year 2015 but most importantly made the RTC program permanent. In addition, the enhanced RTC program has been considerably restructured to:


  • Allow eligible small businesses (i.e., $50 million or less in gross receipts) to claim the credit against the Alternative Minimum Tax (hereinafter “AMT”) for tax years beginning after December 31, 2015.


  • Allow eligible startup companies (i.e., those with less than $5 million in gross receipts and earning revenue for less than 5 years) to claim up to $250,000 of the credit against the company’s federal payroll tax for tax years beginning after December 31, 2015.

 

R&D FOUR Part Test: 

R&D Tax Credit - 4 Part Test

1

Technological In Nature

The activity performed must fundamentally rely on principles:


  • Physical, Biological Science
  • Engineering
  • Computer Science

2

Process of Experimentation

The taxpayer must engage in an evaluative process that is capable of indentifying and evaluating more than one alternative to achieve a result. This may include modeling, stimulation, or a systematic trial and error methodology.

3

Elimination of Uncertainty

The activity must be intented to eliminate uncertainty concering the capability, method, or design for developing or imporving a product or process.

4

Permitted Purpose

The activity must relate to a new or imporved business component's:


  • Function
  • Performance
  • Reliability
  • Quality

Research & Development Tax Credits can apply to virtually any business. Industries that commonly benefit from the R&D credit are:


  • Manufacturing and Consumer Products 
  • Life Sciences (Pharmaceuticals, Bio-Technology and Medical Devices)
  • Food Science (i.e. Bio-Flavoring, Wineries/Vineyards and Micro Brewers)
  • Green Energy, Fuel Cells, Solar Technology and Clean Technology
  • Financial Services & Professional Services (i.e. Software Development)
  • Transportation (i.e. Aerospace, Automotive and Rail)
  • Communications and Media
  • Software and Electronics
  • Health Care
  • Chemicals
  • Semiconductors
  • Utilities



For more information about our R&D Tax Credit services:

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