The R&D Tax Credit: Is Your Business Eligible?

Research & Development (R&D) Tax Credit

What Is the R&D Tax Credit?

Section 41 allows businesses to claim a credit for qualified research expenses. It can be a substantial, often overlooked credit.

The Four-Part Test for Qualified Research

1. Technological uncertainty: There's uncertainty about how to develop or improve the product/process
2. Process of experimentation: You evaluate alternatives through trial and error
3. Technological in nature: Activities rely on hard sciences (engineering, physics, chemistry, biology, computer science)
4. Qualified purpose: Developing a new or improved product, process, formula, invention, or software

What Qualifies

• Developing new products or prototypes
• Designing and testing new manufacturing processes
• Developing or improving software (if it meets the 4-part test)
• Engineering and architectural design work
• Environmental testing related to development

What Doesn't Qualify

• Research after commercial production begins
• Adaptation of existing products to a customer's needs
• Duplication of existing products
• Social science research
• Management studies or surveys
• Reverse engineering

Credit Amount

• Regular method: 20% of expenses above a base amount
• Alternative Simplified Credit (ASC): 14% of expenses exceeding 50% of average prior 3 years

Payroll Tax Offset for Startups

Qualified small businesses (under $5M gross receipts, under 5 years old) can offset up to $500,000/year in payroll taxes with the R&D credit.

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Innovation happening in your business? You may qualify for R&D credits you've never claimed.