Research & Development (R&D) Tax Credit

Helping you foster innovation

Your company may qualify for the R&D tax credit without even realizing it. Innovation exists in all companies and operations, and the R&D tax credit lowers tax liability dollar-for-dollar for all types of organizations – even startups. Now that the R&D credit is permanent, you can factor it into your strategic and tax planning.

Where the R&D is Applicable

You may qualify for federal and/or state R&D tax credits if your company or operation:

Creates new processes, products, apps or software
Improves or automates processes, products or software
Develops prototypes, designs, models or other simulating tools
Designs tools, molds or equipment
Evaluates alternative materials or approaches
Hires outside consultants to do any of the above

Eligibility for the R&D tax credit is only the beginning. Calculating the credit can become complicated and more than one type of credit may apply. New IRS documentation rules in 2022 require more information than before to claim a refund.

Working with an advisor who’s familiar with your industry and the ins and outs of the R&D tax credit are critical to getting the most money back for your investments.

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A TAX CLIENT’S PERSPECTIVE…

“My advisor always responds quickly to our requests, and if he doesn’t know the specific answer to our question, he works with other Adams Brown associates to get us taken care of appropriately.”

John Cashero – AB May Real Estate, LLC, Kansas City, MO

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How to Qualify for a R&D Tax Credit

To qualify for the R&D tax credit, the activity must meet all four requirements:

Be technological in nature
Identify a specific goal or objective
Seek to eliminate uncertainty
Follow a process of experimentation

Calculating the R&D Tax Credit

The R&D tax credit can be calculated three ways:

Traditional
Alternative simplified
Startups and small businesses

The traditional calculating is best for established companies with prior R&D activities. It produces a 20% credit of current year research expenses above a base amount.

The alternative simplified calculation can produce either a 6% or 14% credit against current year research expenses, depending on whether there are qualified expenses in the previous three years.

For startups and small businesses, the R&D tax credit can offset alternative minimum taxes or payroll taxes. Businesses with gross receipts of $50 million or less in the last three years can claim the credit against the alternative minimum tax.

Businesses with gross receipts of $5 million in the current year can claim the credit against up to $250,000 in payroll taxes.

In either case, the R&D credit can be carried forward up to 20 years.

Industry Specializations for R&D Tax Credits

Agriculture Construction Dentists Healthcare Manufacturing Oil & Gas Restaurants

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The R&D Tax Credit for the Oil & Gas Industry