Posted by William Mehi on 05.02.24

There are so many misunderstandings about what is required to qualify for R&D tax credits that it is a wonder anyone applies for the R&D tax credit.  These misunderstandings are far more critical than the misunderstanding you had with your wife when she used hot sauce instead of BBQ sauce on your ribs. This misunderstanding costs companies thousands of dollars in lost cash that they need for their businesses. The myths abound. One frequently circulated myth is that a company must increase its research in order to qualify for the R&D tax credits again the next year. This is far from the truth.  Questions about qualifications need to be asked to an experienced tax credit consultant like Tax Point Advisors in order to not make a mistake with your tax credits or to miss an opportunity for one of the most lucrative tax incentives out there.

What Are Federal R&D Tax Credits?

The federal R&D tax credits were created under the Reagan administration to promote American innovation as well as stimulate the economy with some high tech jobs. Over time the tax credits have been redefined and better defined to be more inclusive.  Many companies who didn't use to qualify, now do.  These tax credits are subtracted from the tax owed by the company.  They are not a deduction.  They are a dollar-for-dollar reduction of taxes owed.

Find out if you qualify.

While the federal and state tax credits differ with qualifications, almost all states follow the federal guidelines on the basic qualifications. These are represented best by these questions:

1. Does your company undertake activity intended to develop a new or improved product or process?  It can be for yourself or your customer.(You don't have to be successful—you just try.) Do you create a product, process, technique, formula or invention to improve performance, functionality, reliability or cost?
2. Is this activity technical in nature (related to biology, chemistry, metallurgy, physics, mathematics, etc.)?
3. Does this activity seek to eliminate technical uncertainty?
4. Does this activity follow a process of experimentation?

Nothing is included about increasing the amount of research annually. In fact, the amount of research done is not in the qualifications.

Important things that do count include these.

• Not only things done in laboratories count.  It can be the design of an installation.
• The work can be done in the office, on a CAD/CAM system, or on the job site.
• The work doesn't have to be new to the industry - only new to your company.

Dozens of industries qualify:

• Apparel/Textile
• Contractors (general, mechanical, electrical, etc.)
• Engineering Services
• Job Shops (metal fabrication, gears, coatings, HVAC, recycling, etc.)
• Manufacturing
• Medical Devices
• Packaging
• Plastics
• Semiconductor
• Software
• Telecommunications
• Tool & Die
• Video Game Developers
• and more

A large percentage of eligible companies never apply for the R&D tax credits because they don't realize that they can claim them.  Don't miss out on thousands of dollars for your company. Contact Tax Point Advisors for a FREE assessment to see:

• if you qualify,
• how much you could save, and
• what it would cost you to have someone manage this for you.