Can Your Business Qualify for a Tax Credit for Increasing Research Expenditures?

You may be surprised!

Many businesses do not consider that their efforts in developing a particular product or process may qualify for the Research and Development credit because their business is not scientific or technological in nature.  The reality is, activities undertaken related to the development of a business component can qualify a broad range of businesses for the credit.

In order to qualify for the credit, the activities must meet a four-part test.

  1. Permitted purpose – new or improved business component
  2. Elimination of uncertainty – the activities answer some unknown
  3. Process of experimentation – consideration of alternatives, development and testing of a hypothesis
  4. Technological in nature – activities must rely on physical sciences, biological sciences, computer science, or engineering

Projects that qualify for the credit can be those aimed at new formulations including food and beverage formulations, new processes such as manufacturing activities, and testing and modifying of chemical formulas for household products.

Businesses with qualifying activities can range from those in more scientific industries such as medical, aerospace, computer software, and telecommunications, to those that are not typically thought of as being highly scientific such as apparel, cosmetics, manufacturing, and food and beverage.

The credit for Increasing Research Expenditures provides a benefit of 14% – 20% of the company’s qualified research expenditures in excess of those expenditures made in a prior base period.  The qualified expenditures captured for the credit are typically wages paid to employees but can also include a percentage of amounts paid to outside service providers or other expenses.

As your business works toward developing new products, let Clarus help you to consider the tax benefits for which your business may qualify.

If you have questions about about the credit for increasing research or other related matters please contact Monika Diehl, CPA at mdiehl@claruspartners.com or call 614.545.9100.

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