Attractive young scientist and her post doctoral supervisor looking at the microscope slide in the forensic laboratory.

The research and development tax credit was designed to give companies that conduct qualified research tax relief of the amounts spent. The credit results to tax savings; however, most companies do not claim it. The R&D tax credit can reduce the company’s total tax liability or provide them with a cash rebate and can therefore offer a source of funding for most companies. It is important to note that most states have R&D credits programs, thus affecting the state taxes.

Who Qualifies for R&D Tax Credits?

For a company to qualify for the tax credit, they must be undertaking qualifying research and development projects. The R&D projects look to seek a “resolution of scientific or technical uncertainty.” Therefore, the benefits are not limited to research companies only, they can be made by companies in a diverse range of sectors, including but not limited to:

  • Food science
  • Automobile
  • Pharmaceutical
  • Engineering
  • Architecture
  •  Manufacturing

R&D Tax Credits: Qualifying Costs

While most people believe that the R&D tax credit is only reserved for large projects, this is far from the truth. There is no minimum amount that can be claimed, as long as it qualifies; the size of the project does not matter. Qualifying costs for R&D include:

  • Employment costs, such as salary and pension contributions.
  • Consumables, such as heat, light, power, prototypes and chemicals.
  • Cost of subcontracting.
  • Costs relating to qualifying indirect activities, such as training and administrative duties.

Qualification & Success

For a company to make a claim, their research and development efforts do not necessarily have to yield results. The R&D tax credit is usually an effort-based credit and the regulations state that success is not required in order to be eligible. The company also does not have to be profitable to make a claim. The credit is carried forward 20 years and back one year. Therefore, if the company made a profit in the previous year, they will benefit and be able to claim the credit against profitable years in the future.

Making a Claim

A claim is usually made on the company’s annual tax return. A higher chance of success is possible if you attach detailed calculations, as well as a narrative explanation of the R&D project. The claim can be filed 12 months after the accounting period in which the expenditures were incurred ends. If the company misses the deadline, they cannot make a claim. For most, this can be a daunting task but with assistance from an advisor, it is manageable. Companies that qualify for the tax credit have the obligation to maintain their records of incurred expenditure in the qualifying activity. The records should have been prepared when the R&D activity was being carried out and they must be relevant, meaning they should be related to the activity.

It pays to take advantage of the tax credit, since it can help the company grow and expand as well as keep up in an ever-increasing competitive world. The tax relief can enable your company to save thousands of dollars each year and unfortunately, many companies are missing out. This is why it is better to work with an expert who will guide you through the process. The professionals at Bodine Perry are here to help. Call (855) 851-8318 or visit to get started today.


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