R&D Tax Credits expanded for many - ELB Consulting

In case you missed it, these tax benefits were made permanent with the PATH Act (effective 1/1/2016); the enhanced R&D Tax Credit program has been simplified and is not just for the Fortune 500 companies anymore. Two key new provisions:

  • The revision help “Small Businesses” (<$50M in gross receipts), allowing them to claim this against their AMT, and
  • for qualified “Startups” (<$5M in gross receipts, and earning revenue for less than 5 years), they can apply the R&D Tax Credits to their Federal payroll taxes (FICA).

The Qualified Research Expenses (QREs) considered must pass the specific four test criteria listed below:

  1. Technical in Nature | The innovation process must reply on the principles of; a) Physical/Biological Science, b) Engineering, or c) Computer Science
  2. Process of Experimentation | The taxpayer must engage in evaluation process that is considering more than one alternative to achieving the end result
  3. Elimination of Uncertainty | The activity must eliminate uncertainty around the capability, method or design of products or processes
  4. Permitted Purpose | Must relate to; a) Function, b) Performance, c) Reliability, or d) Quality of new improvements or processes

Qualified Research Expenses (QREs) are considered the Wages, Supplies and, 1099 Contract Research associated with the development of new products or processes.

Many states also mirror the federal credit, as they want to encourage innovation in their locals. Allowing for a boost in the tax credit benefits to be realized.

The R&D Tax Credit benefits can also apply to nearly any industry where innovation is applied; Life Sciences, Food Science and Bio-Flavoring, Aerospace & Defense, Engineering & Architectural, Software & Electronics, Energy & Chemical Companies, Financial Services (internal/external software development), and Automotive and Transportation, and more.

Our ‘fully engineered’ approach fully quantifies and documents allowable benefits, and establishes the foundation and guidelines to maximize future tax credit benefits.

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