Insights: Article

R&D Tax Incentive Frequently Asked Questions

December 25, 2016

What are research expenditures?
Research (or R&D) expenditures that qualify for R&D tax incentives include wages paid for technical, support, or supervision personnel, supply expenses for materials used in the R&D activities, and outside contractor costs for third parties assisting with R&D activities.

What are tax credits?
Business tax credits are generally government incentives to encourage / reward certain types of activities.  Tax credits can generally be used to reduce your tax liability on a dollar-for-dollar basis and are often claimed in addition to the deduction for the expenses that generate the credit.

How do I apply for a tax credit?
Different tax credits have different application requirements.  There is no formal “application” for the federal R&D credit; the credit is simply claimed by filing a form on your original or amended return to claim the credit.

Are there specific R & D tax credit Rules?
Yes, the R&D tax credit has various rules / criteria that need to be met to qualify for the credit.  For example, the definition of a “qualified activity” includes a set of criteria outlined in the tax code that must be met in order for the associated costs to be eligible for the credit.  The R&D credit also involves a number of computation rules that must be followed to properly compute / claim the credits.

What is Section 41?
Section 41 is the section of the internal revenue code that allows for the R&D credit and provides the various definitions / rules for claiming the credit.  The IRS has also issued various regulations that provide further guidance on the credit.

What are the R & D tax credit qualification rules?
At a high level, in order to qualify for the credit, a taxpayer must be trying to develop something new or improved, where some kind of technical design uncertainty exists, and where an iterative process of design and testing is in place to evaluate different design alternatives.  Activities related to product development / improvement, manufacturing process development / improvement, or software development / enhancement typically meet the qualification criteria for the credit.

Latest Insights

November 16, 2018
Video
If your business sells or operates in more than one state, it’s important to understand the concept of nexus. Depending on how you’re earning revenue, having nexus could impose a variety of taxes, which vary state to state. Learn more in our…
November 15, 2018
Article
Until recently, many businesses weren’t overly concerned about sales tax. They knew they needed to collect and remit in the state in which they resided, but beyond that, their compliance burden was limited.
November 12, 2018
Article
This insight explores what dealerships can expect from the proposed section 199A regulations under tax reform.
November 8, 2018
Article
Are you a business taxpayer with annual gross receipts of $25 Million or less? If so, you may be eligible to take advantage of new Small Taxpayer Safe Harbors that could generate significant tax savings and simplify your tax returns in future years!
November 8, 2018
Article
Considered the most significant tax code overhaul in over three decades, the Tax Cuts and Jobs Act passed in 2017 includes provisions affecting both individuals and businesses.
November 7, 2018
Recorded Webinar
State and local sales tax compliance is always evolving, making it important to stay up-to-date on changes affecting your tax liability and responsibilities. This session will cover what you need to know regarding the recently enacted state and…
November 7, 2018
Article
“Why is my portfolio underperforming the market?” This question may be on your mind.
November 5, 2018
Article
Identify your implementation methodology. There are four practical expedients available. We'll explore each option.
November 5, 2018
Article
Deeper dive into ASU 2016 liquidity.