The Research and Experimentation Tax Credit is a reward for U.S. companies continuing to innovate within their industry. Congress developed the credit as a way to keep top talent and innovative companies on U.S. soil.
For your company, it provides a competitive advantage and encourages growth. This dollar for dollar credit can be used to reinvest into new research and product development, hire top talent, or even funnel into marketing to increase sales.
Roughly $2 billion in credits are received by small to medium-sized businesses just like yours every year.
Congress celebrated the 30 year anniversary of the Research Tax Credit in 2011.
The U.S. government reinvested around $8 billion back into business to reward and promote qualified research on U.S. soil last year.
U.S. multinationals accounted for about 74 percent of the total credit from 2001 to 2008, effectively keeping highly-skilled jobs within the U.S.
If your company is conducting qualified research and experimentation, there are a variety of expenses that you will be qualified to receive a credit for:
Taxable wages related to the conduct of qualified research and experimentation are includable as a research expense. The wages are quantified by establishing a percentage of an employee’s time engaged in the direct conduct or direct supervision of qualified research. An employee’s qualified research percentage can be substantiated by means other than a time tracking system.
Non-depreciable materials used to test product designs are includable as a research expense. Includable materials are supplies used in design testing procedures, prototype builds and performance evaluations.
Sixty-five percent (65%) of vendor expenses related to design and testing services are includable when the taxpayer bears the financial risk and retains substantial intellectual rights to the resulting information.