You don\u2019t have to wear a white lab coat to claim the federal research and development tax credit if you meet the four criteria outlined in Internal Revenue Code Section 41 and its regulations. Learn why failing to explore this credit may be leaving money on the table.<\/p>\n
Many manufacturing companies fail to take advantage of the generous research and development (R&D) tax credit simply because they don\u2019t have staff working in a lab. The Internal Revenue Service\u2019s (IRS) definition of R&D is codified at Internal Revenue Code Section 41 and its related regulations \u2014 and it may not be exactly what you think it is.<\/p>\n
From 2018 to 2027, the estimated value of R&D tax credits to be claimed by U.S. companies is estimated at $163 billion, with $148 billion of that going to corporations.<\/p>\n
You can take advantage of this tax credit as long as your company performs activities such as the following:<\/p>\n
This list is not all-inclusive. According to the IRS, many activities may qualify if they are performed in the United States and meet the following four-part test.<\/p>\n
The IRS test is to create a new or improved product, business component or process that increases performance, function, reliability, composition or quality or that reduces costs for your company. It does not have to be new to your industry.<\/p>\n
Development of internal use software may meet the permitted purpose test if it:<\/p>\n
The research must fundamentally rely on the hard or physical sciences, such as engineering, physics, chemistry, biology or computer science.<\/p>\n
You must be able to demonstrate that you\u2019ve attempted to eliminate any uncertainty about the usefulness of the development, improvement or design.<\/p>\n
You must be able to demonstrate during the research process that you\u2019ve experimented and evaluated alternatives. This may have been done through research techniques like modeling, simulation, trial and error or some other method.<\/p>\n
Claiming the credit requires a lot of supporting documentation, however. It is worth taking the time to assess whether the amount of tax relief you\u2019ll get is worth the effort. For example, you\u2019ll need to determine how much of a credit your company is eligible for, how difficult it will be to document your company\u2019s R&D activities, whether the credit can be used to offset alternative minimum tax liability and whether you can claim previously unused credits.<\/p>\n
Many, if not all, manufacturers may find they can reduce their taxes by taking advantage of the federal R&D tax credit. In addition, many states have an R&D credit that is available to manufacturers. It\u2019s worth investigating and we can help. Contact us today to determine whether you should be claiming this credit.<\/p>\n","protected":false},"excerpt":{"rendered":"
You don\u2019t have to wear a white lab coat to claim the federal research and development tax credit if you meet the four criteria outlined in Internal Revenue Code Section 41 and its regulations. Learn why failing to explore this credit may be leaving money on the table. Many manufacturing companies fail to take advantage … <\/p>\n