How to Qualify for R&D Tax Credit

Innovation is taking the world by storm, and the U.S. is one of the forerunners in research and development. Did you know that you can reduce your company’s tax burden by claiming an R&D tax credit for business research-related purposes? Here’s how you can qualify:

What is the R&D Tax Credit?

Established in 1981, the research and development tax credit aims to incentivize innovative R&D in the country. This credit isn’t only available to scientists and researchers but offers endless opportunities for businesses to reduce their tax liability. In 2015, the Protecting Americans from Tax Hikes (PATH) Act made this tax credit permanent and extended its availability to small businesses and startups.

How To Know If Your Company is Eligible for Credit?

The eligibility criteria for the R&D tax credit is broad and applies to product development, activities, and operations like quality enhancements, manufacturing processes, and software development. For startups, the R&D tax credit can be applied against their payroll tax for up to five years.

No matter what industry you come from, your business can qualify for the R&D tax credit if the activities meet the Four Tests stated in IRC §41. Firstly, the research conducted should relate to the performance, operation, or reliability of your business. There is no hard and fast rule to find something unique; as long as you work on something innovative, your company will qualify for the credit.

Next, this research should include a multi-approach method to achieve your desired result, especially when you’re uncertain about the process or end goal.

Lastly, your research must be based on computer sciences, biological sciences, or engineering.

How Can You Claim the R&D Tax Credit?

You’ll need to submit certain documents to the IRS to back your claim. It’s important to document all activities you’re looking to claim and keep important documents such payrolls for employees involved in the research, all receipts and expenses incurred, blueprints, designs, project notes, and meeting minutes.

Be completely sure you know which costs can be claimed, so you’re on the right track. The wrong claim can raise questions, which could result in a delay or a direct rejection.

Applying for an R&D tax credit requires strong analytical skills; choose an advisor that’s experienced to guide you well. The Darson Group experts have been in the industry for years and can help through the credit application process. We also offer cost segregation services and WOTC tax credit services. For a  free consultation, call us today at (775)-298-4122.

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