Do You Qualify for the R&D Tax Credit 2018-01-22T17:43:40+00:00

Do You Qualify for the R&D Tax Credit?

Do You Qualify for the R&D Tax Credit?

Four-Part Test

Congress established a four-part test that defines qualified research activities associated with new and improved product and process development to exclude routine engineering.

1

Technological in Nature

Activities must be based on a hard science such as physics, biology, chemistry and computer sciences. The activity cannot be based on the soft sciences which include psychology, humanities, arts or social sciences.

2

Technological Uncertainty

Designs related to the development activities must have inherent risks or uncertainties associated with their potential for success.

3

Process of Experimentation

This test, intended to exclude routine engineering, requires a process of theoretical or physical evaluation that can result in the development of design alternatives.

4

Permitted Purpose

The goal of the activity must be to improve the fit, form, or function of a product or process. This does not include development directly related to aesthetic changes or technology that does not build on a company’s knowledge base.

Indicators of Qualified Research

The Research & Experimentation Tax Credit rewards efforts related to product/process development, product enhancement, process improvement, and software development.  Typical indicators of qualified research include:

  • Degreed engineers or scientists on staff

  • Operates in a manufacturing industry

  • Patentable products or production methods

  • Has new/continuous improvements to products and/or processes

  • Operates in industry where prototyping is common

  • Is awarded government R&D projects, from program such as: SBIR, STTR

  • Engages in Continuous Quality Improvement efforts

  • Manufactures simple products in a highly automated system

  • Creates high warranty costs due to improper product/process design

  • Develops software using new algorithms, techniques or architectures

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