Posted by Jeffrey Feingold on 09.04.24

If your company participates in the advancement of pharmaceuticals, biotechnology, medical devices and other business related to the biomedical industry, are you capturing valuable tax credits that you can reinvest in further innovation? If not, you should be aware that your potentially qualifying activities could mean tens and even hundreds of thousands of dollars of research and development (R&D) tax credits.

Many life sciences activities are eligible for the R&D tax credit—a credit which allows companies that invest in research and experimental activities to offset income tax liability. In addition to the federal tax credits, which became permanent in 2015, many states offer valuable credit for these activities.

Look Outside Traditional R&D Cost Centers

A growing trend for biotechnology and pharmaceutical companies is the move away from putting most investment resources behind one or two super drugs. Instead, they are diversifying behind a more comprehensive portfolio of products. Not surprisingly, there is a host of R&D activities that must take place to vet and launch each product, and many of these activities may qualify for the R&D tax credit.

For life sciences companies, the development of new products includes activities that cross the intersection of development, manufacturing and regulatory approvals. The bottom line? Don’t disregard activities that don’t seem directly related to traditional R&D. However, it is important to be able to correlate an employee’s time to the business component requirement that is one part of meeting the four-part test to be eligible for the R&D tax credit.

See related blog: How to Qualify for R&D Tax Credits: The Four-Part Test

Typical Qualifying Activities

Life sciences include multiple facets that can include pharmacology, pharmaceuticals, chemistry and many other related disciplines. While not all-inclusive, typical qualifying activities can include:

• Developing new or improved pharmaceuticals, biologics or medical devices
• Developing product improvements to increase shelf life
• The reformulation of an existing drug to reduce side effects or dosage
• Designing and developing certain hardware and software systems for use in research and clinical development, and medical device equipment used for treating various diseases
• Improving the manufacturing process
• Developing new uses for existing drugs
• Establishing a new factory or production line where new technology is employed or new manufacturing techniques are used
• Developing technology for compliance with EPA requirements
• Manufacturing experimental qualification lots and clinical trial lots

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

Special Considerations

Since many clinical trials can take place outside of U.S. borders, life sciences companies must be sure that the contract research organization (CRO) that is running the trial makes all data available so that costs can be assigned as U.S. or non U.S. activities. While this information can be sorted out after the fact, it makes the qualification process run much more smoothly when it is done concurrently with the trial taking place.

Find Out if Your Activities Qualify

It is understandable that you may not be certain about whether a particular activity qualifies. You may also need the help of a professional to help you document all of your R&D activities. 

Your accountant or qualified R&D tax credit expert can help you determine whether your business activities meet the criteria of the test by conducting a tax credit study.

Given the new permanent nature of the tax credit, now is the time to consider whether activities performed by your company qualify for major cash-saving tax credit opportunities. 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, please leave us a message below.