How a Dental Practice Might Qualify for R&D Tax Credits

by | May 31, 2022 | Dental Practice, Tax Credits

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Most companies assume that the R&D Tax Credit is only for a certain type of research and development, such as work done in a lab or in a factory. In reality, any company that develops or improves products, processes, techniques, formulas, or software may qualify. And yes, that includes Dental Practices.

The Research & Development (R&D) Tax Credit has the potential to provide dentists with substantial tax savings and improve their financial situation. However, many dental practices are unaware that they could qualify for significant tax savings through the R&D Tax Credit.

The R&D Tax Credit is a government incentive that rewards the field of dentistry for activities meeting the four-part test required to qualify for the credits. These activities often include improvements to existing techniques, experimenting with alternative materials, working on complex cases, and utilizing new technologies.

In practice, qualified procedures might include:

  • Crowns
  • Bridges
  • Veneers
  • Implants
  • Night Guards
  • Dentures

How to know if your dental practice qualifies for R&D Tax Credit?

The R&D Tax Credit allows qualifying dental practices to lower their current-year income tax liability and seek a refund for taxes paid in the previous three years.

Dentists who undertake the following activities may be eligible for the R&D tax credit:

  • Lab work (milling)
  • Time spent with patients on qualified appointment types
  • Individuals include the Dentists, Dental Assistants, and Dental Lab staff
  • Procedures meeting the four-part test include crowns, dental implants, veneers, bridges, and night-guards

While non-qualified activities include:

  • Fillings
  • Extractions
  • Cleanings    
  • Office management, insurance, billing, reception
  • Time spent with patients on non-qualified appointment types

Eligible qualified research activities must also meet all the criteria established in the 4-part test:

  1. Permitted Purpose – Requires that the research be conducted with the goal of developing a new or improved product or process that would result in improved performance, function, or quality.
  2. Elimination of Uncertainty – A dental practice must show that there’s an attempt to eliminate uncertainty about the development of a product or process.
  3. Process of Experimentation – A dental practice must demonstrate that alternative methods for attaining the target objective have been assessed using modeling, simulation, or trial and error.
  4. Technological in Nature – Experimentation must be based on a scientific discipline such as chemistry, biology, computer science, or engineering.

Why aren’t more dentists taking advantage of the R&D Tax Credit?

The main reason dentists are not taking advantage of this incentive is because they are unaware that the credit might apply to them. The industry has only recently begun to claim the credits, so there is minimal audit history and no tax court case law.

It can be difficult and time-consuming to figure out how to claim and reap the full benefits of the R&D Tax Credit. So, if you’re seeking a partner with unrivaled professional expertise, KPT Consulting is here to assist you. Our consultants are familiar with these credits, how to apply for them, and how to use them to benefit your practice in the long run.

Want to learn more? Get in touch with us.

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