The Biotechnology Industry is “Growing” and Can Qualify for Significant R&D Tax Credits

The Biotechnology Industry is “Growing” and Can Qualify for Significant R&D Tax Credits

Posted by Jeffrey Feingold on 06.29.22

Biotechnology is all around us and is providing breakthrough products to cure disease, feed the hungry and clean our environment. At its simplest, biotechnology harnesses cellular and bio-molecular processes and puts them to work to help solve our most perplexing problems. Every day, research scientists explore new ways to improve our quality of life using biotechnology.

Biotechnology companies are continuously undertaking qualified research activities to solve the greatest challenges facing our society. Whether it’s finding a cure for cancer, protecting against bio-terror threats, or creating renewable energy sources, biotech and life science companies can take advantage of the R&D tax credits for their qualified research expenditures associated with these activities.

The Research & Development Tax Credit

Enacted in 1981, the federal Research and Development (R&D) Tax Credit provides a valuable credit based on eligible spending for new and improved products and processes. Qualified research meets the following four criteria:

  • New or improved products, processes, formulas, inventions, software, or techniques
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation

Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses, and costs associated with developing a patent. 

Even startup biotech companies benefit from R&D tax credits

Startup companies in the biotechnology industry can now use R&D tax credits to offset the employer portion of their payroll tax. While startup biotech firms may not have an income tax bill to use the credit against, they often have many employees and therefore payroll tax, so this credit could be highly valuable. 

Some important rules apply to this use of the credit:

  • The payroll offset is available for tax years starting in 2016.
  • It can offset only up to $250,000 in employer payroll taxes per year. 
  • To claim the payroll offset, a start-up company cannot have had revenue for more than five years prior to the current tax year. 
  • Companies that have 50% or more common ownership with another company must apply the tests on a combined basis.

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

Biotechnology innovation can help to solve some of the healthcare, agricultural and industrial problems that are present in America, particularly if early stage funding for emerging bioscience companies is available.  R&D tax credits can help with the startup costs included in these early stages.

A few examples of the different industries biotechnology is used

Biotechnology is the technological application of living organisms and derivatives to develop, make, or modify products for specific uses. The fields of biomedical engineering, bio-manufacturing, and molecular engineers are also often incorporated into biotechnology for use in agriculture, food production, and medicine. 

Biotechnology also encompasses fields such as bioinformatics, which relies on computational techniques to analyze biological data for use in genomics and proteomics. Bioinformatics frequently informs research in the pharmaceutical sector. Green biotechnology addresses the problems of traditional industrial agriculture through the application of genetic engineering in plants and other techniques.

Biotechnology also has applications to medical processes, such as using organisms to produce antibiotics. Industrial biotechnology harnesses the ability of organisms to produce chemicals or catalyze industrial processes.

Examples of qualified research activities for biotechnology companies are numerous and include:

  • Developing computational techniques for advancing bioinformatics from living organisms
  • Creating new or enhanced production processes utilizing enzymes as industrial catalysts
  • Developing or enhancing existing genetic modification tools or techniques for agriculture or livestock
  • Developing new or improved cultivation of plants through micro-propagation or genetic modification
  • Developing new or improved processes to stimulate microorganisms to degrade contaminants in a polluted environment
  • Developing biosynthetic processes to convert substrates into more complex products
  • Designing new biomaterials to support tissue formation for medical application
  • Developing new or improved gene therapy procedures
  • Testing to satisfy domestic and foreign regulatory requirements

Biotechnology is currently one of the most progressive fields of research in life sciences. By offering a profound understanding of biological processes, biochemical pathways, and advancing bioinformatics from living organisms, biotechnology can lead to the creation of highly innovative processes and products across a wide variety of industries. Tax Point Advisors is the perfect partner to help determine if your biotechnology research and development qualifies for the R&D tax credits, please contact (800) 260-4138 or please leave us a message below.

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