When we initially meet with small business clients, they sometimes lament that the federal government isn’t as supportive of their contributions to society as they’d like. They envision a world where innovation not only fuels their business growth but also earns them a significant tax break.

As it turns out, in some respects, this is already a reality. The Credit For Increasing Research Activities (aka, the Research and Development (R&D) Tax Credit) — which first appeared as part of the Economic Tax Recovery Act of 1981 — is an often-overlooked tax incentive that serves as a powerful tool that may put money back into your business’ pocket for the inventive work you’re already doing. In this blog post, we share what you need to know to take advantage of this important tax credit.

If any part of your business involves designing, developing, or improving products, processes, formulas, or software, be sure you’re claiming a federal Research and Development (R&D) Tax Credit and any R&D tax credits your state may be offering to offset the costs of these activities. The federal benefit provides a dollar-for-dollar credit against your business tax for the costs of performing R&D activities.

Qualified expenses include:

• W2 wages paid to employees involved in the R&D activity
• Supplies (including tangible property, extraordinary utility costs, and server leasing costs) used for the R&D activity
• Contract R&D-related costs that would qualify if they were conducted by regular employees

Qualifying for the R&D Tax Credit: The Four Criteria

To qualify for the Research and Development (R&D) Tax Credit, your company’s R&D activities must be conducted within the United States and must meet all of the following four criteria: Continue reading… Continue reading… Continue reading…