Do I Qualify For A Tax Credit?
DO YOU QUALIFY FOR R&D TAX CREDITS?
Regardless of industry, size, or revenue, any business that performs activities that meet the following four tests may qualify for R&D tax credits:
Technical uncertainty. An activity performed to eliminate technical uncertainty about the development or improvement of a product or process, which includes computer software, techniques, formulas, and inventions.
Process of experimentation. Activities undertaken to eliminate or resolve a technical uncertainty, which involve an evaluation of alternative solutions or approaches and is performed through modeling, simulation, systematic trial and error, or other methods.
Technological in nature. The process of experimentation relying on the hard sciences, such as engineering, physics, chemistry, biology, or computer science.
Qualified purpose. Creating a new or improved product or process (computer software included) that results in increased performance, function, reliability, or quality.
- You are able to claim on the amounts paid for:
- Contract research
- Computer leasing
- Salaries paid to employees who conduct qualified activities, as well as to first-line managers and personnel who directly support these individuals, can qualify.
- These salaries are generally one of the largest components in an R&D tax credit claim, but they may differ by industry. For example, the most prominent expense for pharmaceutical and construction companies is often contract research.
- A portion of payments made to U.S. based contractors, as well as any supplies consumed in the R&D process, are also eligible.
Payroll Tax Offset
The new payroll tax offset is available to companies that have:
- Gross receipts for five years or less, under $5 million in gross receipts in the current year and for each subsequent year the payroll tax offset is elected, and qualifying research activities and expenditures.
- Early stage businesses could potentially use the R&D credit to offset payroll taxes for up to five years, with a maximum of $1.25 million in total credits used on their quarterly federal payroll tax returns, regardless of whether they are profitable.
Documentation is Key
- With recent changes to the legislation, documentation has become a critical element of the R&D credit initiative.
- Leyton will work with their clients to evaluate all activities for potential eligibility, identify qualifying expenses and produce documentation to support and justify these costs.