R&D Tax Credit

R&D Tax Credit

Background

Credit for Increasing Research Activities IRC §41 (aka the Research & Experimentation Tax Credit or R&D Tax Credit) is designed to promote and reward innovation in the United States and keep high-paying, high-tech jobs stateside.

In 2015, the PATH Act made the federal R&D Tax Credit permanent, ultimately allowing companies to rely on the credit as a valuable resource and financial planning tool. In addition to the federal credit, most states now offer similar incentives for R&D.

The R&D Tax Credit provides a competitive advantage and encourages growth.  This dollar-for-dollar boost to cash flow can be used to reinvest into new research and product development, hire top talent, or even funnel back into marketing to increase sales.

For the last 20 years, Hull & Knarr has led companies through engineering-based studies consisting of retroactive engagements, current-year evaluations, and audit defense and contract review.  Our team takes ownership of defending your credit claims should they fall under review by the IRS or state authority.  We take on the heavy lifting so you can travel light, save valuable time, and remain focused on what is most important to you.

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R&D Tax Credit by the Numbers

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What qualifies?

The common assumption is that activities must be performed in a research lab to qualify for the R&D Tax Credit. However, the reality is that the threshold is much lower and your research activities must simply pass what is known as the 4-Part test.

If your company meets the following criteria, it is highly likely that you engage in qualified activities that generate a credit.

4-Part Test

  1. Technological in nature- Activities must be based on a hard science such as physics, biology, chemistry, and computer sciences.
  2. Technological uncertainty – At the outset of the project, designs must have inherent risks or uncertainties associated with their potential for success.
  3. Process of experimentation- This 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.

Indicators of Qualified Research

  • Degreed engineers or scientists on staff
  • Manufacturing industry operations
  • Patentable products or production methods
  • New or continuous improvements to products and/or processes
  • Industries where prototyping is common
  • Government R&D projects, from programs such as: SBIR, STTR
  • Continuous quality improvement efforts
  • Simple products manufactured in highly automated systems
  • High warranty costs due to improper product/process design
  • Software development using new algorithms, techniques or architectures
  • Outsourced research and/or testing

Eligible Expenses

Calculate Your Potential Credit

The Hull & Knarr Experience

For over two decades, we’ve acted as an R&D Tax Credit Trail Guide. We ensure all the required preparations are made before embarking on the journey together and will be with you throughout the entire process, saving you time, money and ensuring a safe experience.

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