Innovative Processes in the Pharmaceutical Industry Qualify for Significant R&D Tax Credits

Innovative Processes in the Pharmaceutical Industry Qualify for Significant R&D Tax Credits

Posted by Jeffrey Feingold on 08.10.18

Research and development is key to producing better medications as well as creating new and improved innovative processes to grow the Pharmaceutical industry. Pharmaceutical companies conduct studies to help determine doses, side effects, and safety concerns. These every day tasks are all significant R&D activities that can qualify companies for both federal and state R&D tax credits. U.S. pharmaceutical companies spend billions of dollars annually conducting research to develop new or improved medicines. Now is the optimal time to take full advantage of the R&D tax credits that are available to them. 

What is the R&D Tax Credit?

The federal government implemented the Research and Experimentation tax credits in 1981 to create jobs and spur technology in the United States. Known as R&D tax credits, the program was meant to be a temporary measure to give the economy a boost. Subsequent modifications simplified the credit and made it available to a much wider variety of activities and industries. Given the popularity of the R&D tax credit program, many states followed suit by establishing their own programs. Today, more than 40 states offer R&D credits with attractive features and additional advantages.

To remain competitive in the global medicine market, it has become imperative that pharmaceutical businesses claim the R&D tax credits they have earned. Many factors have to be taken into effect for what is considered qualified activities.

Some activities that can qualify:

  • Drug research
  • Clinical R&D
  • Quality assurance
  • Supply expenses linked directly to qualified activities
  • IT software programs to maintain and organize results
  • Employee wages for in house research expenses
  • Third party contract research expenses
  • Pre-clinical and discovery research to develop new compounds
  • Improving automation process
  • Prototypes
  • Improving packaging methods
  • Further development to improve shelf life
  • Drug delivery systems
  • Devices used for testing purposes

The above examples are just a few of the activities that should not be disregarded without first considering the tax credit potential. With continued regulations and changes in the industry, innovation is always happening and continues to help grow the US economy.  It is important to be able to analyze and document all expenditures within these activities to confirm the qualifications. 

The activities and associated expenditures of a company can qualify for the R&D tax credit if the activities meet the four-part test established by the IRS. 

Qualified research must meet the following four criteria:

  1. New or improved business component
  2. Technological in nature
  3. Elimination of uncertainty
  4. Process of experimentation

Watch this video: How to Qualify for R&D Tax Credits: The Four-Part Test

Find Out if Your Activities Qualify

It is understandable that you may not be certain about whether a particular activity qualifies your pharmaceutical company. You may also need the help of a professional to document all of your R&D activities.  Your accountant or qualified R&D tax credit expert can help you determine whether your business meets the criteria of the test by conducting a tax credit study. To learn more about whether your industry and company activities meet the R&D four-part test, request our free assessment today.

Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with businesses that may qualify for R&D tax benefits. For more information, call us at 800-260-4138 or please leave us a message below.


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