Reduce Your Tax Bill With the R&D Tax Credit

R&D Tax Credit

Written by Charlie Wendlandt

July 27, 2021

The Research and Development (R&D) Tax Credit remains one of the best opportunities for businesses to substantially reduce their tax liability. The R&D Tax Credit is for businesses of all sizes, and many companies are eligible, with an expansive list of activities qualifying for the credit. Many of the daily activities of companies from a wide-range of industries can qualify for federal and state tax savings high to enough to allow companies to hire new employees, invest in new products and service lines, and grow their operations.

What Is the R&D Tax Credit?

The Research and Development Tax Credit may be claimed by taxpaying businesses that develop, design or improve products, processes, formulas or software and is calculated based on the wages of the employees that are performing the qualifying work.

What Qualifies For the R&D Tax Credit?

If a company does any of the following, the business likely qualifies for the Research and Development Tax Credit:

    • Develops or designs new products or processes
    • Enhances existing products or processes
    • Develops or improves upon existing prototypes and software

We’ve prepared an easy way for you to find out if your company could qualify for the Research and Development Tax Credit. Take our 3-minute, R&D survey.

Take the R&D Survey

How Do I Claim the R&D Tax Credit?

A number of factors go into claiming the credit, but the potential savings make exploring the credit a worthy investment. The credit may be claimed for both current and prior tax years.

To claim the credit, the taxpayer must contemporaneously evaluate and document their research activities to establish the amount of qualified research expenses paid for each qualified research activity. While taxpayers may estimate some research expenses, they must have a factual basis for the assumptions used to create the estimates.

Examples of such documentation includes:

    • Payroll records
    • General ledger expense detail
    • Project lists
    • Project notes
    • Other documents a company produces throughout the regular course of business
    • These records combined with credible employee testimony can form the basis of a Research and Development Tax Credit claim

As seen above, what constitutes R&D with regard to the credit is much more expansive than many people realize, with activities related to applied sciences and other technical projects qualifying companies from numerous industries.

For additional information on either the credit or our approach in calculating the credit please contact us.

 

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Charlie Wendlandt
I joined Hawkins Ash CPAs in 2011. As a manager, my main responsibilities include planning, test of transactions and preparation of financial statements for ERISA audits during outside of tax season. During tax season, I work with compilation and reviews and the preparation of corporate tax returns.

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