Qualifying Expenditures for The R&D Tax Credit

R&D Tax Credit

By
Alex Pak
on
January 23, 2023

Eligible Expenses for Claiming the Tax Credit

The R&D tax credit covers a range of qualifying expenditures, such as employee compensation costs, materials expenses, leased or rented computer equipment, outsourced services expenses.

Employee Compensation

The R&D tax credit takes into account three categories of employees who contribute to research efforts for R&D tax credit purposes:

  • Direct research employees - This includes individuals who are directly involved in performing research-related activities, such as scientists, scholars, technologists, designers, project managers, and other relevant personnel.
  • Direct research supervisors - This includes individuals who directly oversee the employees engaged in the primary research activities.
  • Direct research supporters - This encompasses individuals who provide direct support to research efforts. For instance, a laboratory technician who assists in setting up experiments and collecting data is a direct research supporter.

Materials Expenses

The R&D tax credit allows for the inclusion of costs associated with prototyping and testing materials, such as those used in prototype builds or new formulations of beauty products. These costs are considered research expenses and can be included as part of the credit. Additionally, costs such as those associated with materials used in the evaluation of new formulations, can also be included.

Computer Equipment

It is becoming increasingly common for software development companies to claim expenditures for computer rentals or lease costs, particularly for running complex techniques pertaining to research activities.

Outsourced Services/Contractor Expenses

It refers to expenses incurred by a business for hiring third-party contractors or consultants to perform research activities that qualify for the R&D tax credit.

It's important to note that only a portion of contractor costs can be claimed as an R&D tax credit. The exact percentage that can be claimed depends on several factors, such as the type of activity performed by the contractor and the specific terms of the contract. However, in general, businesses can claim up to 65% of the qualified contractor costs for research activities as an R&D tax credit.

How We Can Help?

GOAT.tax is dedicated towards helping businesses claim the R&D tax credit by providing expert guidance and support. Our team of 50+ R&D tax professionals have an experience of over 350 years in streamlining the R&D tax credit process. By working with GOAT.tax, businesses can efficiently claim the credit and maximize their benefits. Our advanced platform simplifies the complexities involved in claiming the tax credit, allowing businesses to automate the R&D credit process.

continue reading

Section 174 Explained

Section 174 of the Internal Revenue Code now defines the treatment of Specified Research or Experimental (SRE) expenditures. Learn more!

read on

Common Misconceptions About R&D Tax Credits For Startups

Each year, numerous qualifying businesses miss out on the advantages of R&D tax credits. Discover the common misconceptions.

read on

Understanding the Alternative Simplified Credit Calculation for R&D

The ASC method offers a simple alternative, particularly for companies with a limited R&D history. Is it the right method for you?

read on