Tax Credits & Incentives
Discover how our expertise in tax credits and incentives can help your business maximize savings and boost profitability.
What is the R&D Tax Credit?
The federal R&D tax credit is a dollar-for-dollar reduction of a company’s tax bill to incentivize U.S. companies to incur expenses related to the design, development or improvement of products, processes, techniques, formulas, or software. First created in 1981, the federal R&D tax credit was made a fixture of the federal tax code by the PATH Act of 2015, which permanently extended the credit and broadened the ability of many businesses to monetize the credit.
Does My Company Qualify for the R&D Tax Credit?
Any company that engages in activities (known as “Qualified Research Activities”) to develop or improve products, processes, software, formulas, techniques, or inventions in a way that requires some level of technical experimentation to determine the most accurate and appropriate design may qualify for the federal R&D credit. No industry is excluded, although, by the nature of activities typical of certain industries, businesses in certain “target” industries tend to be more appropriate R&D-credit-candidates than businesses in “non-target” industries. Target industries include, but are not limited to, the following:
What are “Qualified Research Activities?”
Activities that may cause a company to qualify for the federal R&D tax credit include, but are not limited to, the development or improvement of along with some specific examples:
Products
• Developing and testing new tangible / intangible products
• Improving existing product functionality, quality, reliability, or performance
• Evaluating alternatives to existing products or processes
Techniques
• Developing or improving a technical process (e.g., engineering, drilling, etc.)
• Creating new innovative methods / procedures
Software
• Developing a software intended for either external / internal use
Processes
• Researching solutions intended to reduce time-to-market for a product
• Developing a new manufacturing process
• Improving an existing manufacturing process, in whole or in part, to increase automation, efficiency or throughput, or to reduce cost or waste
Formulas
• Developing and experimenting with formulations (e.g., chemical, food, livestock feed, etc.)
Inventions
• Developing something that is patentable
Or paying outside consultants to conduct any of the above activities.
What are Qualified Research Expenses?
The expenses may qualify for the R&D tax credit:
Employee Wages
Wages for employees who directly supervise, directly execute, or support the execution of Qualified Research Activities are eligible as Qualified Research Expenses.
Contractor Expenses
Third party contractor expenses in which the contractor is engaged in Qualified Research Activities.
Supply Expenses
Expenses for materials and supplies directly used in connection with the Qualified Research Activities that were not capitalized or depreciated.
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