Known as one of the most generous tax incentives offered by the U.S. government, do not miss your chance to benefit from the Research & Development (R&D) tax credit. Since the credit’s permanency was enacted back in 2015, this lucrative program has provided reliable opportunities for tax payers to slash their tax bill. Often times this credit can reward companies with hundreds of thousands of dollars in non-diluted tax savings.
The timing to submit an R&D tax credit claim is determined by the deadline of when you file your federal tax return. The R&D tax credit is calculated on the federal income tax return via a Form 6765. Most companies on extension will need to file by September 15, 2021 or October 15, 2021.
Am I Eligible?:
Determining eligibility for the R&D tax credit is predicated on passing four broadly-defined tests, known as the R&D 4-Part test. Often times companies believe their activities don’t give rise to the level of innovation required to qualify for the R&D tax credit. This thinking is frequently debunked after reviewing the 4-Part test, which is outlined from a high-level below:
- Technological in Nature: Activities rely on a principal of a hard science (e.g., Computer Science, Engineering, Physics, Biology, Chemistry, etc.)
- Permitted Purpose: Activities must give rise to a new or improved product or process
- Technical Uncertainty: At either the outset or during the ongoing development process, technical uncertainties (i.e., challenges, issues, etc.) must have been faced.
- Process of Experimentation: Activities must demonstrate that the technical uncertainty was addressed by evaluating one or more alternatives via a process of experimentation (e.g., iterative trial and error, modeling, simulating, etc.)
What Costs Qualify?:
The IRS has established four narrowly defined buckets of expenditures that can qualify for the credit:
- Wages: Taxable wage amounts of those supervising, performing, or supporting R&D activities
- 3rd Party Contractors: 3rd party vendors working on U.S. soil engaging in R&D activities
- Supplies: Materials/supplies used and/or consumed in the development process
- Cloud Computing: Use of 3rd party development servers to test/develop code
Please reach out to one of our R&D Tax credit experts to see what benefit your company might be missing out on. Our Firm’s experts are focused on the ins and outs of the Research and Development Tax Credit, working with researchers, scientists, engineers and software developers to understand their unique situations. The initial consultation is complimentary! What do you have to lose? Fill in the form below and one of our experts will be in touch.
Withum’s R&D Tax Credit team to help address any further questions.
R&D Tax Credit