Qualified Costs for the R&D Tax Credit

R&D Tax Credit

innovation

By
Deborah Roth, CPA
on
July 20, 2023

Eligible outlays for the R&D tax credit encompass salaries and wages, supply expenses, computer rental or lease, and contractor expenditures.

SALARY AND WAGES

Key roles that contribute to the R&D tax credit:

  • Direct Research Employees: These are the individuals directly engaged in research activities, such as researchers, engineers, CAD associates, project managers, and more. They form the heart of the credit.
  • Direct Research Supervisors: Those overseeing the direct research employees fall under this category. Their guidance and supervision add significant value to the credit.
  • Direct Support Employees: Individuals providing direct support to research efforts are included here. For example, assistants taking notes and gathering data, as well as individuals testing prototypes and first articles, are considered part of the direct support team. Their contributions also qualify for credit.

SUPPLY COSTS

When engaged in prototyping and material testing, the expenses incurred for these materials hold immense significance. For instance, the costs associated with prototype builds fall under research costs, as do the expenses related to evaluating new formulations of beauty products, which are considered supply costs. Embracing these expenditures within the research framework ensures their rightful place in the pursuit of innovation and qualifies them for potential benefits under the R&D tax credit.

COMPUTER RENTAL OR LEASE

A growing trend among software development companies is the inclusion of computer rental or lease costs in their claims. As the need for running intricate research algorithms and testing techniques intensifies, these expenditures gain prominence. Notably, expenses related to cloud storage, specifically allocated for research activities, are becoming a prevalent aspect of such claims. Embracing these evolving expenditures highlights their crucial role in driving innovation and further solidifies their eligibility for the R&D tax credit.

CONTRACTORS

When research tasks require the expertise of non-employees, these costs can often be deemed qualified contractor expenses. It's possible to include costs for contractors or outside resources as long as they are directly linked to research activities. For example, hiring a specialist with electrical engineering expertise enables the inclusion of 65% of those expenditures for research activities attributed to outside researchers. This approach broadens the scope of eligible expenses, allowing businesses to tap into valuable external resources while still benefiting from the R&D tax credit.


HOW WE CAN HELP

Our dedicated team is ready to assist your business in optimizing tax benefits and minimizing federal income tax through the R&D tax credit. If your business has invested in qualified research expenses while engaging in qualified research activities, you are eligible to harness the potential of this tax credit. Allow us to guide you on this rewarding journey, unlocking the full scope of tax advantages available to your innovative endeavors.

EXPLORING R&D TAX CREDITS

The R&D tax credit presents a valuable opportunity for diverse businesses to mitigate income tax liability and reap numerous benefits. We specialize in assessing your company's federal R&D tax credit potential while exploring state R&D tax credit options, with many states offering even more lucrative incentives than the federal credit. Our seasoned team of CPAs, attorneys, engineers, and technology experts work diligently to maximize savings and generate cash flow through R&D tax credits, ultimately fostering overall growth for your company.

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