Your business may qualify for a tax credit for conducting research and experimentation.
The research and development tax credit (often called the R&D credit) is designed to encourage businesses to innovate. That means when you devote time or resources to develop a new product or process — or improve an existing product or process — you may qualify.
Qualifying R&D activities
A wide-range of activity may qualify for the credit including:
- Developing prototypes
- Experimenting with formulas, techniques, and processes
- Devoting resources to new products or software
- Improving existing products
Eligible research and experimentation expenses
Research costs can quickly add up. They include:
- Wages paid to an employee for conducting qualifying research activity
- Supplies used to conduct research (e.g., tools, components, and chemicals)
- A portion of third party expenses such as contracted research and engineering consultants
Qualifying industries
Many private industries are eligible including, but not limited to, manufacturing, technology, engineering, and construction.
Claiming the R&D tax credit
You have several options for applying the credit:
- Claim tax refunds with interest from your previous tax returns
- Reduce your current-year estimated tax payments
- Offset payroll tax
- And in certain instances, apply it against the alternative minimum tax
Some states have their own R&D tax credit, allowing you to stretch your savings even further by offsetting state taxes.
How we can help
We have helped businesses in many different industries identify and document their qualifying research activities. From presenting our findings to submitting the forms and amending your return, we want to make the process easy for you.
The R&D tax credit is just one of many federal tax strategies that may be available to you. CLA’s industry-focused professionals can help. Contact CLA today.