Helpful Information Regarding 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 credit is meant to increase industry around the county by offering businesses tax relief for performing specific forms of research and development. If you are interested in taking advantage of the R&D tax credit, however, there are some things you ought to know first.
You do need to note that there are highly specific criterion your company will be required to meet if you are to actually receive this tax credit. You will discover additional information about these next. The research and experimentation tax credit can be rather confusing. If you still have questions, which you’re likely to, when you get done reading this guide, it would probably behoove you to talk to a certified public accountant or tax preparer who regularly works with business clients.
The Four Points You Must Meet
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There are four main points that dictate whether or not you will be eligible 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 involve the new development or improvement of a business component that pertains 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 must intend to find information that will eliminate uncertainty surrounding the development or the improvement of the aforementioned business component. This basically means that the company isn’t allowed to guard top-secret documents or hold exclusive meetings about the project; rather, they must allow all documentation and information to be easily accessible to interested parties.
3. The company needs to do its research in a systematic fashion. The government has not, however, dictated which system is required. 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 relate to the biological sciences, some form of engineering, or computer science.
Exclusions That May Pertain to You
You also need to be aware of the exclusions that could cause you to be denied for the R&D tax credit even if everything in the previous paragraphs relates to your research. A few common exclusions are duplication of existing business components, reverse engineering an existing business component, and developing a component that will only be available for internal use within your company.