Research & Development Tax Credits
Overview
What are R&D Tax Credits?
Does your business develop, manufacture, construct, design, or improve products, software, or processes? If so, you might qualify for some significant tax savings.
R&D tax credits provide a dollar-for-dollar reduction in taxes owed. Federal tax credits are typically 5-8 percent of qualifying expenses, and several states offer credits in
addition to this amount.
Qualification Criteria
R&D credits are designed to incentivize a wide array of development-oriented activities, so the rules governing the credits are broad. Development projects and associated costs tend to qualify when they are technical in nature (rely on the hard sciences), include technical uncertainty, and require a process of experimentation to resolve the technical uncertainty.
Applicable Industries
The following list includes common industries with qualified research activities:
- Software
- Manufacturing
- Oil and gas
- Mining
- Construction
- Electrical contractors
- Engineering
- Architecture
- Agriculture
- Technology
- Electronics
- Life Sciences
- Scientific laboratories
- Medical devices development
- Food or supplement manufacturing
- Product design
- Banking and insurance software
Credit Calculator
What is my Estimated Yearly Benefit?
Depending on the facts, credits may be available for up to four years.
State credits may be available in addition to these federal credits.
Case Study
Suppose you have a company with an owner who spends 25 percent of her time directing new product development ideas, seven engineers who spend all of their time on product and process improvement, and six production employees who spend half their time making prototypes. Assume these employees earn average wages of $150k, $80k, and $50k respectively.
If this fact pattern applies for the past several years, we could perform a multi-year lookback study to claim over $150,000 of federal tax credits!
