R&D Tax Credit Summary
R&D Tax Credit Summary
The R&D credit can put 5-10% of your research dollars back into your pocket.
Credit for Increasing Research Activities IRC §41 (Research & Experimentation Tax Credit) is designed to reward innovation in the United States and keep high-paying, high-tech jobs stateside. All industries conducting qualified research are eligible for the research credit.
Finally, in 2015, the PATH Act made the federal R&D Tax Credit permanent. Going forward this allows companies to rely on the credit as a valuable financial tool to plan their future research efforts. In addition to the federal credit, most states now offer similar incentives for R&D.
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At A Glance…
Roughly $2 billion in tax credits are received by small to medium-sized businesses just like yours every single year.
In December of 2015, the President signed the PATH Act into law, thereby granting a permanent extension to the R&D Tax Credit.
The U.S. government reinvested $11.3 billion back into businesses to reward and promote qualified research on U.S. soil in 2013.
In addition to the federal R&D credit, Forty-five states now offer a similar incentive. Several of these states’ R&D credits are refundable.
If your company is conducting qualified research and experimentation, there are a variety of expenses that you can receive a credit for:
Taxable wages related to the conduct of qualified research and experimentation are includable as a research expense. The wages are quantified by establishing a percentage of an employee’s time engaged in the direct conduct or direct supervision of qualified research. An employee’s qualified research percentage can be substantiated by means other than a time tracking system.
Non-depreciable materials used to test product designs are includable as a research expense. Includable materials are supplies used in design testing procedures, prototype builds and performance evaluations.
Sixty-five percent (65%) of vendor expenses related to design and testing services are includable when the taxpayer bears the financial risk and retains substantial intellectual rights to the resulting information.