What is the R&D
Tax Credit?
The R&D Tax Credit is a federal incentive that allows businesses to reduce income tax liability in the current tax year and receive a cash refund for taxes paid in the last three years.
Many states have also implemented their own version of the R&D Tax Credit, and qualifying businesses can claim both! The Protecting Americans From Tax Hikes (PATH) Act was signed into law, and the R&D Tax Credit became permanent, which also revised qualifications, expanding the program’s eligibility. In addition, many qualifying small businesses may claim the Payroll Tax Credit to offset some of their payroll tax liability.
Many businesses are unaware that many of their daily operations could qualify for a dollar-for-dollar Tax Credits, irrespective of industry or company size. To claim the R&D Tax Credit, an activity must meet a 4-part test to validate the research activity.
Our Comprehensive and Compliant Approach to Claiming R&D Tax Credits
Step 1
Consultation
Start the process with a complimentary consultation with a member of our R&D Team. We will review your eligibility and collect important financial documents.
Step 2
Eligibility
Our specialty tax associates will review your specific data to estimate the credits you may be eligible for and project the claim timeline. If there are no credits to be claimed, there is no cost to you.
Step 3
Qualifications
If you are eligible, our team will review all of the QREs (Qualified Research Expenditures) to ensure accuracy.
Step 4
Calculations
Our team will collaborate to complete the appropriate calculations and provide an audit ready file, including a detailed technical report with supporting guidelines and documentation.
Step 5
Tax Credits
Upon filing the proper documentation with the IRS, your income tax liability in the current tax year will be reduced. Additionally, you might be eligible for a refund for the previous 3 years. The remaining credits can be carried forward up to 20 years.
Step 6
Future Proofing
Optimize your future by working with StenTam to help your business claim future credits with increased efficiencies.
Common Questions About R&D
What is Research & Development Tax Credit?
The Research and Development (R&D) tax credit, also known as Research and Experimentation (R&E) tax credit is a United States government sponsored tax initiative. It results in a dollar for dollar reduction in a company’s tax liabilities and is one of the best things American businesses can do to reduce their liability tax. Companies can submit documentation to file using the IRS Form 6765. The research and experimentation tax credit was essentially designed as an incentive to make research activities more affordable for businesses, strengthening American innovation.
How do I qualify?
Many businesses are not aware if they actually meet eligibility qualifications. Some believe there are special rules needed to qualify. While the correct documentation is required, in reality, over 60 industries can qualify for R&D credit in over 30 states, to offset tax liabilities. Some businesses’ daily operations can even qualify them, allowing them to receive basic research credit if it puts them over a certain base amount. Even start-ups can use this to their advantage.
Here are some of the factors small businesses and large businesses alike must be doing to qualify:
- Create new or innovative products
- Change existing products
- Create new processes, techniques, prototypes, or software development
- Hire engineers and designers for internal use or contract research to complete the job
What should you pay attention to?
To file, you must claim some of the credit as a payroll tax credit against the employer section of your social security taxes. It is calculated based on the increases in research expenditures and activities. Small businesses can even use R&D credit to offset payroll taxes of a current tax year if their expenditures are greater than a certain base amount. Companies can no longer expense costs identified as IRC Section 174 research expenses. Instead, these expenses are charged to a capital account and deducted over 5-years.
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