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Research & Development (R&D) Tax Credit

Maximize Innovation. Minimize Tax Liability.

What Is It?

  • Dollar-for-dollar federal tax credit for qualifying R&D activities
  • Established in 1981 to promote domestic innovation
  • Over 65% of eligible companies fail to claim it
  • $6.6 billion claimed by just 17,700 companies

Key Benefits

  • Direct reduction of federal tax liability
  • Covers wages, supplies, and contractor costs tied to R&D
  • Available in over 30 states with additional incentives
  • Can be claimed for current and 3 prior open tax years
  • Carryforward option for up to 20 years
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Qualifying Activities

  • Designing or improving products or processes
  • Prototyping, patent development, and testing
  • Software development for internal use or sale
  • Trial-and-error experimentation with materials, tools, or techniques

Four-Part Test for Eligibility

  • Eliminate uncertainty in product or process development
  • Activities must be technological in nature (engineering, computer science, etc.)
  • Must involve a business component (product, process, software, formula, etc.)
  • Must include a process of experimentation to evaluate alternatives
  • Small Business Boost: PATH Act (2016)
  • Startups and pre-revenue firms can offset FICA payroll taxes
  • Expanded access for small and mid-size businesses across multiple sectors

Energy and R&D

The Energy Policy Act of 2005 (EPAct) was enacted creating immediate potential savings for building owners or architects and engineers based on the use of energy efficient improvements. Section 179D outlines the requirements for a maximum potential tax deduction between $2.50 and $5.00 per square foot of affected spaces. The recent Inflation Reduction Act also prompted the following allowances … ufspays.com

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