Does Your Company’s R&D Qualify for a Tax Credit?

Most businesses perform research and development on a regular basis in order to improve products or processes and fuel business growth. Of course, that research comes with a price tag. But like many other business expenses, your company’s R&D expenses may qualify for a tax credit—one that too few small-business owners know about or take advantage of.

If you have performed any type of R&D within your business over the last year, please inform your CPA so that they can better determine if you qualify for the R&D tax credit before you file taxes in Provo.

Do Your R&D Activities Qualify?

Not all research and development is considered “Qualified Research,” as defined by the IRS. And while we recommend that you speak to your CPA regarding any R&D your company has performed, we wanted to give you a general idea of what types of research typically qualify.

As defined by the IRS, “Qualified Research” is any R&D that is performed with the intent of improving or creating either (1) a product or service that your company will sell, or (2) a product or process to be used internally to improve your business. In other words, if your R&D is targeted at something you’re selling or something you’re using within your company to be more efficient, it may qualify for the R&D tax credit.

There are certain circumstances that can disqualify your R&D expenses from qualifying for the tax credit. These include:

  • Research performed after commercial production has begun.
  • Research conducted to adapt a product for a specific customer.
  • Duplication of an existing product or process.
  • Conducting studies or surveys.
  • Research for certain internal-use computer software programs.
  • Research performed outside of the United States or its territories.
  • Research conducted under the humanities, social sciences, or the arts.

Regardless of whether or not you believe your R&D qualifies for the tax credit, it’s vital that you inform your CPA about all of your company’s research and development activities. They will be better suited to determine which, if any, of your expenses qualify for the R&D tax credit.

If you would like to schedule a meeting with one of our CPAs to discuss your qualification for this tax credit, please give us a call. We’d be happy to advise you on this issue before you file taxes in Provo.