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.
R&D Tax Credit vs. R&D Tax Deduction: What's the Difference?
Businesses that invest in research and development may encounter two tax concepts that sound similar but work very differently: the R&D tax credit and the R&D tax deduction. Both relate to research and development spending, but they are not interchangeable. They operate under different sections of the tax code, affect a business's taxes differently, and have different qualification rules.
R&D Tax Credit for Manufacturing Companies: What CPAs Need to Know
Manufacturing clients are among the strongest candidates for the federal R&D tax credit, yet many never claim it. The work that qualifies often looks like everyday operations: engineers refining a product, a production team automating a line, or a quality group testing new materials to cut scrap. For CPAs, that creates an opportunity to deliver real value by recognizing qualifying activity early. This guide covers which manufacturing activities and expenses may qualify, how the Four-Part Test applies, what documentation matters, and the questions that can help uncover R&D opportunities with your clients.
Does My Business Qualify for the R&D Tax Credit? The 4-Part Test Explained
"Does my business qualify for the R&D tax credit?" — this guide breaks down the IRS 4-part test, what counts as a business component, and which expenses qualify.