Research & Development Credit

Did you know that time and resources spent on research and development are eligible for both federal and state tax credits?  If you did not, you are not alone. According to alliantgroup, a leading consultant in the area of these credits, only one out of twenty small and medium-sized companies eligible for this credit takes advantage of it.

In order to qualify for the credit, US-based research must be undertaken to discover information that is technological in nature, and its application must be intended for use in developing a new or improved business component.  In addition, substantially all of the research must be elements of a process of experimentation for a new or improved function or performance.   The definition of qualified research is broad and the following are some examples of activities that would qualify:

  • Developing new or improved products, technology, processes or formulas.
  • Developing prototypes or models.
  • Developing or improving software technologies.
  • Streamlining internal processes.

If you feel your business conducts any of the activities above, you may be eligible for the credit.  It will be necessary to determine the expenses associated with the qualified research.  The following expenses related to the qualified research are eligible for the credit and should be tracked separately throughout the year:

  • Wages for qualified research.
  • Cost of supplies.
  • Research activities performed by certain outside third parties on your project.

If you feel your business might qualify for the R&D credit, please contact us to determine how you can make the most of this credit and put those tax savings back in your pocket.

Brad Zaumseil – is a Tax Manager at Wertz & Company, LLP, a Professional Services Firm located in Orange County, CA that specializes in working with entrepreneurs along their journey to success.