Credit for Increasing Research Activities (R&D Tax Credit)
A recent study showed companies realized more than $12 billion in R&D tax credits. Moreover, billions more were left “on the table” due to company inaction. R&D tax credits are available for companies large and small that develop new or improved products, processes or software. While more than 40 states also offer R&D credits, Federal credits get most of the attention.
As an example, Section 41 of the Internal Revenue Code allows for one of the largest tax benefits to companies a tax credit incurred for “qualified research expenses.” This credit is applied against income tax liability as a general business credit under IRC Sec. 38. However, for qualified small businesses, companies can now offset these credits against certain payroll taxes.
Qualified Research Expenses
Eligible costs include:
- Taxable wages paid to employees for performing qualified services;
- Supplies used in the conduct of qualified research; and
- 65% of amounts paid or incurred by the taxpayer to any person (other than the taxpayer) for qualified research.
Qualified services are:
- Expenditures which may be treated as expenses under IRC Sec. 174 undertaken for the purpose of discovering information that is technological in nature, the application of which is intended to be useful in the development of a new or improved business component, and substantially all of the activities constitute elements of a process of experimentation.
The EisnerAmper Approach to the R&D Tax Credit
EisnerAmper offers a flexible approach to maximizing and documenting research tax credits. We understand the time constraints your technical personnel have for tax projects. Therefore we seek to develop a strategy based upon your existing financial, employee, and project data to meet those needs.
Over recent years, there have been several developments in the law regarding the research tax credit. EisnerAmper is here to address those developments as they potential relate to your needs:
- Payroll tax credit offset and eligibility questions (BLOG)
- ASC730 Safe Harbor
- State R&D tax incentives – such as the recently enacted New York State Research and Development Tax Credit
- Pilot model qualifications at manufacturing facilities
- Internal Use Software Regulations