Overwhelmed by the Complexity of Credits? This May Help

A Guide to Understanding the Research and Development Tax Credit

The R&D tax credit, which is officially known as the research and experimentation tax credit, is a general business tax credit that was made permanent in the United States of America in 2015. This tax credit, by design, provides tax relief for companies that do certain sorts of research and development over the course of a given year. If you believe the R&D tax credit could be beneficial for the company you run, the remainder of this guide will teach you quite a bit about it.

It is important for you to understand that this particular tax credit requires businesses to meet a variety of criterion before they can take advantage of it. You will discover additional information about these next. The research and experimentation tax credit can be rather confusing. If you do not feel as though you fully understand this credit when you finish this guide, which is not unlikely, you should schedule an appointment with a certified public account or a tax preparer who often assists business owners.

The Four Qualifying Elements
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There are four primary criterion you must meet in order to receive the R&D tax credit in the United States of America. These are outlined in the next section.
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1. The research needs to have to do with creating or improving some business component that relates to your industry. If you intend to improve upon an already-existing component, you need to make sure your project will make it more functional, more reliable, or of a higher quality than it is now.

2. The company’s goal has to be to discover information that will eradicate uncertainty that may currently surround the development or the improvement of the decided-upon business component. Essentially, this means that the company must be open about what it is doing and cannot have top-secret documents or meetings related to the research.

3. The company must systematically conduct its research. The government, however, does not state which system companies have to follow. You could decide to follow every step of the scientific method to a T or you could opt to stick with a simple trial and error process.

4. The project’s basis must lie in technology. This means it has to qualify as either a biological science, a sort of engineering, or something in the field of computer science.

Exclusions You Should Know About

There are also some exclusions to the R&D tax credit that could prevent you from getting it even if you meet all of the above criterion. Some major exclusions are duplicating a preexisting business component, reverse engineering a component and claiming it for your own, or developing a component that will only be released internally within your firm.