Pharmaceutical Companies: Seize R&D Tax Credit Opportunities

Pharmaceutical Companies: Seize R&D Tax Credit Opportunities

Posted by Jeffrey Feingold on 09.07.22

According to a recent industry report, the U.S. pharmaceutical industry spends more than $100 billion annually on research and development (R&D) activities involving the development, design and testing of new or improved pharmaceutical drugs. Many of these activities qualify for federal and state R&D tax credits; is your company taking advantage of this opportunity to reinvest in the growth of your company?

According to industry experts, less than 33% of companies that qualify for R&D credits actually apply for them. Many pharmaceutical companies fail to take full advantage of the tax credit due to lack of understanding or proper documentation.

Globalization Increases Industry Competition

As the pharmaceutical industry continues to encounter increased globalization and outsourcing of R&D activities, it has become imperative that pharmaceutical companies claim the R&D tax credits they have earned to remain competitive.

Yet businesses in industries across the spectrum are missing out on tens and even hundreds of thousands of dollars in money-saving opportunities each year simply because of misconceptions about which activities qualify. A bit of background is in order.

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 U.S. 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.

For years, the tax credit program was temporary—hastily extended more than a dozen times since its passage in 1981. Now that federal R&D tax credits were made permanent in 2015, there is no better time to reinvest in your pharmaceutical business by getting credit for your qualified R&D activities.

Download our free e-book: The Business Owner's Guide to R&D Tax Credit Credits

The Opportunity

Since its inception, the federal R&D tax credit was meant to encourage industries – including the pharmaceutical industry – to invest in the development of new or improved business components. More specifically, the following activities may qualify pharmaceutical companies for the R&D tax credit:

  • Drug research
  • Preclinical and discovery research for the development of new compounds
  • Clinical R&D
  • Quality assurance
  • Supply expenses linked directly to qualified research activities
  • Employee wages for in-house research expenses
  • Third-party contract research to supplement in-house activities for qualifying pharmaceutical research expenses
  • IT software programs to maintain and organize test or lab results

How to Qualify

As your pharmaceutical company plans for 2017, now is the time to evaluate whether you are taking full advantage of the R&D tax credit. 

R&D tax credit eligibility largely depends on wheth­er the work you are conducting meets the criteria established by the IRS in its four-part test. The experts at Tax Point Advisors can help you capture your full R&D tax credits for eligible activities and manage the documentation process.

Request a free assessment to determine qualifying R&D tax credit eligibility.

Tax Point Advisors, a firm with expertise in working with small and midsize companies, works with CPAs and their business clients who may qualify for R&D tax benefits. For more information, read our free e-book: The Business Owner's Guide to R&D Tax Credit Credits, contact us at (800) 260-4138, or please leave us a message below.

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