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Research and Development Tax Credit Studies 

The R&D Tax Credit was established in 1981 to reward U.S. businesses of all sizes for their time and money invested in industry-specific innovations. However, the majority of organizations taking advantage of the credit are large businesses. While small and mid-size businesses represent 98% of companies in the United States, they account for just 7% of the R&D Tax Credit claims each year. 

Such a disparity probably exists because the tax law itself is so complicated. Outside of the larger, national firms, many tax preparers don't have the resources or time to study the tax law well enough to make sure their clients receive accurate calculations of R&D credit. 

However, the effort required doesn't negate the benefit. It really does pay to be aware of the credit, what it includes, and how your business can qualify. 

So what does the IRS mean by research and development and what do those activities include? Research and development simply involves finding ways to improve products and processes. The following are some specific activities that would qualify your business for the R&D Tax Credit:

  • Developing new drugs, foods or chemicals
  • Manufacturing products
  • Developing, implementing or upgrading systems or software
  • Improving or building manufacturing facilities
  • Designing tools
  • Creating new, improved or more reliable products
  • Applying for patents

The most important thing to remember about eligibility is that even if the above efforts are unsuccessful, you can still receive the credit. The government will reward your business for its effort, not for the outcomes.  Amidst all the activities that will qualify for the R&D credit, some will not. Those activities include:

  • Researching development options for a component that has already begun to be produced
  • Conducting surveys and studies
  • Modifying a product for a specific client
  • Duplicating a product that already exists (creating a knock off)
  • Doing market research
  • Performing research outside the United States

Businesses that usually qualify include manufacturing, science, information and technical services.

For more information contact:

        Mike Brinker, CPA
        Partner
        515-288-3279