Misconception: The system is too complicated for us to claim R&D tax credits

Misconception: The system is too complicated for us to claim R&D tax credits

Posted by Jeffrey Feingold on 09.17.20

Don't give up.

When it comes to the United States tax code, many businesses throw their collected hands up in the air and say, "I give." This is even truer when it comes to R&D tax credits. For many businesses, they simply believe the system is too complicated for us to claim R&D tax credits. While the ins and outs of tax law can take some time to understand, they are not so complicated that they should not be taken advantage of.

Learn about the R&D tax credits.

The R&D - research and development - tax credits were put into place in 1985 with the hope that they would stimulate the United States' economy and encourage research and development. At the time, it was felt that the U.S. was falling behind other industrial nations when it came to developing new technologies. One area of the R&D tax credits that companies find the most complicated is determining if their R&D programs qualify for the tax credit in the first place. There is a four-part test to help you determine this. The four parts consist of

  • permitted purpose,
  • elimination of uncertainty,
  • process of experimentation, and
  • technological in nature.

Break the R&D tax credit code down for simplicity.

Like many things in life, the R&D tax credit is easier to understand when it is broken down into smaller components or steps. First, complete the above mentioned four-part test. This will help you determine if you need to continue through the process. If your company's R&D program doesn't fit the four-part test, then there is no need to continue. Once you have determined that your R&D might be a match for the R&D tax credit, take a look at the exclusions list. This list gives you an idea of the types of research that will not qualify. These include:

  • research that is conducted after the start of commercial
  • production of the component,
  • reverse engineering, and
  • duplication of existing business components to name a few.

Next you will want to determine which of your expenses are eligible for the tax credit. These can include

  • wages for in-house research,
  • supplies - this includes tangible property except for land,
  • contract research utilizing third parties, and
  • basic research payments.

When it comes to the credit calculation itself, you have several options including a simplified credit option that can help make the whole process easier.

Contact a professional to help you with the R&D tax credit.

While dealing with the tax code in the United States is never simple. It doesn't need to be overly complicated. With a little help from Tax Point Advisors, you will find claiming your R&D tax credits are worth the effort. Don't miss out on thousands of dollars in tax credits because you have the misconception that the system is too complicated for us to claim R&D tax credits. Contact Tax Point Advisors for a free assessment. They will help you determine if you qualify, how much you can save, and the cost associated with having someone manage this process for you.

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