Who Qualifies?

The R&D tax credit is now available to any United States business that spends time and resources on new development, improvements, or technological advancements in effort to improve upon its products or processes or have improved upon the performance, functionality, reliability, or quality of existing products or trade processes.

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It is not the type of company that determines if it qualifies but rather the company having engaged in any of the Qualified Research Activities (QRAs).

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• Developing or designing new products, processes, or formulas

• Developing a new manufacturing process

• Developing prototypes or models

• Developing internal software solutions

• Developing or improving software technologies

• Testing new materials or concepts

• Streamlining internal processes

• Maintaining laboratory equipment

• Documenting research activities

• Designing or evaluating product alternatives

• Certification testing

• Environmental testing

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Some of the qualifying industries include Aerospace, Agriculture, Apparel, Architecture, Automotive, Biotech/Life Sciences, Breweries/Wineries, Coatings and Adhesives, Chemical, Commercial Bakeries, Construction, Distribution, Electronics, Energy, Fabricators, Fast Food Franchises, Food Processors, Food Products, Furniture Makers, HVAC, Insurance, Jewelry Design, Job Shops, Medical Devices, Medical and Dental Practices, Oil and Gas Refineries, Package Design, Pharmaceuticals, Plastic Injection Molding, Research and Development Facilities, Real Estate Brokerages, Telecommunications, Tool and Die and Transportation.

 

Research and Development Tax Credit History

 

In a temporary effort to boost the economy in 1981, the federal government created the Research and Experimentation Tax Credit program to incentivize businesses to invest in research. With the rapid changes in technology in the past decades, companies across multiple industries have seen increasing challenges to constantly innovate their products or processes to compete across a global economy. These attempts to innovate can be time consuming and expensive and often fail to yield a financial return on investment.

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Congress extended the R&D tax credits more than a dozen times over subsequent years. In 2015 Congress passed the Protecting Americans from Tax Hikes Act (PATH), finally making them permanent. In addition to becoming permanent, the PATH Act expanded R&D credit provisions to start-ups and small businesses.

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Prior to the PATH act, the traditional method of calculating and filing for the credit was a process that was not worth the effort for small business owners and their tax advisors alike. Now it is, thanks to the new broadened terms and calculation methods, along with the ability to look back 3 years and amend returns.

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