Research + Development Tax Credit
When you think of research and development, you probably shrug it off thinking you don’t qualify. After all, it most likely brings to mind pictures of lab coats, test tubes or Petri dishes – but that’s not always the case. Qualified research for the purposes of the research + development tax credit is much broader:
- Aims to create or improve a new or existing business product or process
- Software/App/Module development + test
- Machining new component parts + assemblies (CNC, EDM, BridgePort, Plasma, Laser, CMM, etc.)
- Circuit design, manufacture, assembly, test and burn in
- Chem/Bio/Life Sciences to create new drugs and therapies
- New Plant Varieties (Mandelian genetics, PVP, etc.)
- Engineering + Modeling (BIM, Civil, Structural, Electrical, Hydrology, Nano-Tech, etc.)
- Plastics and Metals (formulation, polymers, extrusion, molding, stamping, etc.)
- Technological in nature
- Relies on Engineering, Physical Sciences, Computer Science or Biological Sciences
- Involves well-reasoned methodology
- Consideration of alternatives
- Systematic Trial and Error
- Success or Failure Testing
- Developing a hypothesis, refining or discarding the hypothesis through testing
- Permitted Purpose Test
- Create new or improved performance, reliability, quality or new/improved functionality
As you can see, this definition opens up the Research + Development tax credit qualifications to many more businesses, possibly yours.
R+D tax credits can lead to substantial tax and cash flow advantages while reducing potential audit risks. The value could be a reduction in your current tax year liability and effective tax rate (including prior tax year, current tax year and even carrying forward as much as 20 years). Our specialists focus on how you can receive the biggest benefit from this credit and help put structures in place to track your expenses for future credits.
Who Qualifies for the Research + Development Tax Credit?
The R+D credit applies to both business products and business processes. It doesn’t matter whether your research was successful or how complex it was. Ask yourself these questions:
- Are you, your employees or outside contractors working on complex technical matters with uncertain outcomes?
- Are you coming up with new ideas, solutions or alternatives?
- Are you testing ideas to see which one works best?
- Do the results improve the quality, reliability or performance of an existing product or process?
- Would the results create a new or improved product or process?
- Do you model or prototype the component or process?
- Are these activities being done in the United States?
If you answered yes to these questions, you should be taking advantage of the R+D credit. Henry+Horne’s R+D specialists can help you:
- Identify qualified activities
- Apply cost accounting techniques to support and quantify credits
- File for Federal and State R+D credits (35 states including AZ have credits)
- AZ even has a refundable credit, such that you receive a credit even if you have no tax liability
- Federal R+D credits may be applied to offset the entity’s payroll tax when there is a loss or no tax due
- Assist with placing new property and assets into service
- Cost segregation studies to accelerate depreciation
Questions about the Research + Development tax credit? Fill out the form to the left to contact Steve Roark.