The Research & Development Tax Credit is one of the largest permanent corporate tax benefits in the Internal Revenue Code and remains as such after the sweeping Tax Reform passed in 2017. R&D Tax Credits can be rewarded for many tasks being performed by all types of taxpayers, including but not limited to: Pharmaceuticals, Aerospace and Defense, Banking/Insurance, Retail, Manufacturing, Financial Services, Small Tech start-ups, etc.
Uncover Your Potential Tax Benefits
An R&D Tax Credit study involves generally 2 main areas: quantitative (or the numbers ultimately required to be filed with the tax return) and the qualitative (or the supporting documentation).
How this data is uncovered for specific taxpayers is a skill that Withum is uniquely qualified to assist you. Our team of highly experienced professionals have performed R&D studies (as well as supporting those claims on Audit) for all industries and have been battle-tested in all types of client and IRS environments.
With the recent introduction of the R&D payroll offset, qualified small businesses are able to elect to apply the R&D credit towards their payroll tax liability rather than their income tax. This is a major new development, allowing many taxpayers that normally would not qualify for the R&D Tax Credit (due to insufficient bottom-line Taxable Income) to investigate their potential benefit (with Withum’s Assistance). Withum’s R&D Tax Specialists are here to keep you updated and informed on everything related to the Research and Development Tax Credits.
Do You Qualify for the Research and Development Tax Credit?
In order for an activity to qualify for the Research and Development Tax Credit, it must meet each part of the follow 4-part test:
1. Technological in Nature Test
2. Permitted Purpose Test
3. Technical Uncertainty Test
4. Process of Experimentation Test
Computer Software developed for internal general and administrative functions are subject to three additional “high threshold of innovation” R&D credit tests.
1. Innovation Test
2. Significant Economic Risk Test
3. Commercially Available Test
Qualified Research and Development Expenditures
Wages Paid to Employees
Wages paid to employees who are developing or improving technology and products. These are Box 1 W-2 Wages for employees who directly perform, support or provide first-level supervision of the R&D.
Supplies used in qualified research, including tangible property (other than land and depreciable property).
3rd Party Contractors
3rd party contractors who are paid to develop or improve technology and products. However, the taxpayer must retain substantial rights in the results, whether exclusive or shared.
Rental or Lease Computers Cost
Rental or lease cost of computers includes payments made to cloud service providers that are related to hosting software under development.
Update: Discussions are underway in Washington, D.C. to repeal the required amortization of Research & Experimentation (R&E) expenses over a period of five years and to restore the immediate expensing of such expenditures.
For years companies enjoyed immediate tax benefits for their investment in research and development activities. In addition to great incentives, likeR&D tax credits, companies currently have the option to capitalize […]
A recent Chief Counsel memorandum announced by the IRS on October 15, 2021 (Field Attorney Advice memo 20214101F) provides legal advice on information required for a research credit claim to […]