Research & Development Tax Credit
Leveraging your processes to illuminate opportunity
As a growth-focused business, continual improvement of your processes, products, and services is always top of mind. But did you know that by developing these new methods or processes you could also be saving money through tax credits? Through the Research & Development (R&D) tax credit, the development activities you already participate in can produce benefits beyond the initial improvements.
What is the R&D tax credit?
The R&D Tax Credit is a tax incentive that encourages businesses to invest in innovative activities. It was introduced with the aim of stimulating economic growth and allowing American businesses to compete on a global scale.
The credit rewards taxpayers for engaging in qualified research activities (QRAs) by providing a credit for a portion of their research expenses. If the activity in question can pass a simple four-part test, then it would be considered a qualified research activity and included in the computation of the R&D Credit, even for companies such as manufacturers, software and technology firms, food and beverage companies, and construction companies.
For more about R&D tax credits, find informational resources from our advisors by clicking here.
Typical Benefit
When leveraging the R&D tax credit, businesses can see a benefit of 7-15% of all qualifying costs
Sample Savings
Between federal and state credits, we helped a local manufacturer save $165,000 & a software developer save $220,000
The 4-part test
Each activity needs to pass the 4-part test to qualify as an approved research activity
Eligible Industries
Fostering innovation across a range of fields
The beauty of the R&D tax credit is that it embraces a broad spectrum of activities that many businesses perform in their ordinary operations. The IRS defines R&D in a broad sense, encompassing any activity or project undertaken for the purpose of improving existing products, creating new products, or improving or creating manufacturing or software processes. This broad definition enables a wide range of industries to benefit from the tax credit. These can include but are not limited to:
- Aerospace
- Agriculture
- Architecture & Engineering
- Brewery
- Chemical Formulation Development
- Civil Engineering
- Consumer Products
- Contract Manufacturing
- Engineering
- Food & Beverage
- Foundry
- Game Development
- Manufacturing
- Metal Fabrication
- Oil and Gas
- Pharma/Biotechnology
- Plastics/Injection Molding
- Software Development
- Aerospace
- Agriculture
- Architecture & Engineering
- Brewery
- Chemical Formulation Development
- Civil Engineering
- Consumer Products
- Contract Manufacturing
- Engineering
- Food & Beverage
- Foundry
- Game Development
- Manufacturing
- Metal Fabrication
- Oil and Gas
- Pharma/Biotechnology
- Plastics/Injection Molding
- Software Development
Our Process
Our advisors guide you through each step in the process, from studying your activities and defining your QRAs to calculation and filing of your tax credit. We’ll help illuminate key tax savings opportunities by leveraging processes your business is already performing.
Information gathering
First, we send information request to client to gather initial data
Let's get some background
Abdo R&D team conducts employee interviews, process discussions, and qualifying project walk throughs
Document & calculate
Our team compiles the documentation and calculates the R&D credit
Tax return time
Your R&D credit information is supplied to your tax team to include in the tax return
Results & reporting
We'll have a recap meeting or call to walk through the results, answer any questions, and provide you with the completed R&D Study Report
Continuous connection
We'll have touch points throughout the year to stay up to date with the new projects, activities, & opportunities
Eligible Activities
Fostering innovation across a range of fields
To claim the benefits of the R&D tax credit, your business must participate in Qualified Research Activities which pass the 4 part qualification test. Apart from activities, businesses can also receive credit from Qualified Research Expenses that can be included in the computation.
Qualified Research Activities (QRAs)
Activities that Qualify for the R&D Credit include many types of practices your business may be taking part in. For example, the development of a new or improved product, process, formula, or software. Activities like technical design work, CAD design, or modeling and analysis can also qualify along with prototype development or computer modeling and simulation.
Some examples of qualifying and non-qualifying activities are listed below:
Qualifying
Product focused activities
-
-
- Designing and developing new or custom products
- Improving product function and/or quality
- Testing new materials to improve product performance
- Designing and developing tooling and fixtures
- Designing equipment used in manufacturing
- Prototyping and modeling
-
Process focused activities
-
-
-
- Developing and improving manufacturing processes
- Improving equipment placement and implementation of new equipment
- Improving the flow of materials to increase efficiency
- Improving processes to reduce labor costs
- Automating operational processes
- Reducing run times
-
-
Non-qualifying
-
-
-
- Consumer surveys related to taste, style, cosmetic design, preference, etc.
- Adaption or duplication of an existing business component
- Research to the extent funded by a 3rd party, grant, etc.
- Research after commercial production commences (unless it meets the definition of qualified research above)
-
-
Qualified Research Expenses (QREs)
QREs are expenses that are directly associated with a QRA and are therefore eligible to be included in the R&D tax credit computation. These expenses that qualify occur from the initial concept up to the point of production begins and include:
-
- Wages for employees who perform the qualified activities, direct supervisors of those employees engaged in qualified research, and employees who directly support the qualified research activities.
- Supplies used in or consumed in the qualified research activity
- Contract research done by a 3rd party (limited to 65% of amount paid and the taxpayer must have the rights to and/or be at risk for the results)
Research & development expertise
Guiding you forward with experience
Our industry-specific experience delivers proactive problem-solving for any challenge.
Let's Get Started
Request a feasibility analysis
Think you may qualify for tax savings through the R&D tax credit? Let's take a look! Enter your information below and we'll be in touch to discuss what opportunities you may have available.
"*" indicates required fields
Insights
A behind-the-numbers view of best practices and holistic thinking.
Unlock tax savings with the R&D tax credit: A guide for architectural firms
Leveraging the R&D tax credit can help your architecture firm offset a portion of its research and development expenses, allowing you to reinvest in future innovations.
Engineering solutions: Leveraging the R&D tax credit for your engineering firm
Initially aimed at traditional industries, the R&D tax credit now covers the broad field of engineering, emphasizing the importance of R&D in shaping the future of infrastructure and technology.