June 05, 2019 | Posted in:

Don’t Miss out on the R&D Tax Credit

R&D tax credits save U.S. businesses more than $12 billion annually. Unfortunately, many small and medium-sized businesses aren’t taking advantage of them.

Who Qualifies for the Research and Development (R&D) Tax Credit?

Companies that qualify need to make something—including processes, techniques or software. If your business applies for patents, develops prototypes or software, or builds manufacturing facilities, you may be eligible.

Industries such as agriculture, construction, food and beverage, food processing, life sciences, manufacturing and software are good candidates. But even some service industries such as warehousing and financial might qualify for investments in customer-facing or internal software.

The R&D credit can reduce taxes relative to spending on research and development of new products, including products that fail. Depending on the methodology used, the credit will be between 14 and 20 percent on qualified expenses.

Among the criteria that the IRS uses to determine if something qualifies as a research activity is whether it is technological in nature, is used to eliminate uncertainty, and whether it is part of the experimentation process. Once you have a research activity that qualifies, you have to link it with qualified business expenses.

How do you Take Advantage of the R&D Tax Credit?

That requires documentation, and a disciplined system for organizing it over several years. For the first year claiming a credit, the qualified expenditures must be calculated for up to four prior years. This can all be complicated, but well worth it.

An Alloy Silverstein R&D credit expert can assess your situation and guide you.


This article was published in Alloy Silverstein’s Summer 2019 Newsletter. Click here for more content or to subscribe.


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