Research and development

What is the R&D Tax credit?

The R&D Tax credit is a tax savings directed towards start up companies that incur research and development costs in the United States. A credit of up to $250,000 per year can be taken on your payroll return for up to five taxable years. Some specific examples of projects that may qualify include:

  • Development of new software
  • Tests of new concepts and technologies
  • Prototype and model development
  • Development of new and/or improved products or formulas
  • Updating and streamlining to improve a process



Your Annual Estimated R & D Tax Credit

* Savings can be applied against income taxes or payroll taxes

Learn more about Tax R & D Credit

What are the Benefits of the R&D Tax Credit?

The R&D tax credit benefits businesses by offsetting some of the payroll expenses involved in advancements and experimentation. Society benefits by freeing up companies, like yours, to take additional risks to improve systems and products we use everyday. Other benefits include:

  • $250,000 each year for up to five years
  • Use funds to offset Federal Income Tax
  • Unused credit can be carried forward up to 20 years
  • Some states have their own R&D programs for tax credit
  • Increased cash flow
  • Increased earnings per share
  • Increased return on Investment
  • Reduction of federal and/or state tax liability
  • Lower your effective tax rate

Who qualifies for the R&D tax credit?

To qualify for the R&D tax credit, there are four basic criteria (also called a “four-part test”). All research must be completed in the U.S. and receipts must be from within the past five years. Here are some of the ways we help our clients navigate the credit:

  • Credit calculation
  • Determining eligibility
  • Determining valid expenses
  • Filing your company tax return
  • Financial advice for future R&D

R & D Tax Credit FAQs

  • What is the four-part test?

    In order to qualify, the R&D conducted must prove things like; an attempt to eliminate uncertainty, process of experimentation, that the project is technological in nature and there is a qualified purpose to improve things in the field you’re working on.

  • What is the R&D tax credit (financially speaking)?

    This credit can be utilized to offset employer FICA tax, Federal Income Tax or AMT Tax.

  • What types of research expenses are qualified for the credit?

    Qualified research expenditures include:
        A. Wages
        B. Contract labor (US Based)
        C. Supplies

  • Can a credit be claimed for a prior year?

    Tax years that are open to amendment under relevant statutes of limitations may be amended to include credits. This period is generally three years from the unextended due date or the return filing date, whichever is later.

  • How do I claim the credit?

    The credit is claimed on a timely-filed (including extensions) tax return for the year in which the qualified R&D expenses were incurred.