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What You Should Know About the Research Tax Credit

Posted by Admin Posted on Apr 29 2019


The research tax credit is a rewarding tax program that's designed to promote and encourage businesses to innovate. Here are some things that you should be thinking about to see if this credit can help you save money.



What Is the Research Tax Credit?


The research tax credit allows businesses to deduct a certain percentage of their expenses that come from qualified research. There are several different ways to calculate the credit, but up to 20% of a company's eligible costs may be applied to reduce the company's income tax burden. This is not a deduction, but it can be subtracted from the overall amount of tax that your business pays. Labor expenses and supplies that are devoted to research are among the expenses that can qualify for the research credit.



What Constitutes Research?


There is a four-part test for determining whether an activity is qualified research. First, there must be a permitted purpose, meaning it is creating or improving a functionality. Second, the information discovered must go to eliminate uncertainty. Third, there must be a process of experimentation in that the taxpayer must be using a process to evaluate one or more alternatives. Fourth, the process must be technological in nature, meaning that it relies on principles of science, engineering or computers. All of these elements must be met in order for the credit to be claimed.



Limitations on the Research Tax Credit


In order to claim the research tax credit, the taxpayer must maintain documentation in order to detail the amount of the expenditure. The IRS is well aware of this tax credit, and while it may most certainly be claimed, the IRS will be on the lookout for improper use of this tax credit. This tax credit is rewarding and you should not let IRS rules scare you away from using this tax credit if you qualify. For more help in claiming the research tax credit, contact CPA firms in Las Vegas to find out what you need to do to qualify.