Written by Pat Brazee, Associate Director, Tri-Merit

The R&D tax credit has been around since 1981, but that does not mean it’s old news. The spirit of this credit lives on today and its application has evolved greatly since it was introduced. As technology markets continue to grow, businesses continue to create and implement innovative solutions to solve new problems in an era of uncertainty.

Let’s take a look at how the research and development tax credit can apply in our modern world of ever-changing technology. Many new technology concepts emerging this year theme around COVID-19, the changing workplace, and impacts on the way we do business. Employers are seeking safe and efficient ways to return workers to the office, support an ongoing remote workforce, and stay productive in the absence of employee availability. There is no shortage of technology firms rushing to solve these issues as we move through 2021.

The requirements of the R&D credit 4-part test for qualified activity are detailed in IRC Section 41(d). In short, new technology must create or improve a component of the business, apply the principals of computer science, eliminate some technical uncertainty, and do so by process of experimentation. This applies to all phases of software development process including new technology design. Check out our R&D Credit 4 Part Test article for more information on how it may apply to your tech projects.

Return to Work and Behavior Tracking

The implementation of employee safety protocols during the COVID-19 pandemic was massively impactful to us all. Many companies are looking to innovation to manage safety concerns related to workers returning to offices in 2021. Activity tracking technology such as wearables, internal wayfinding, space utilization, and facial recognition have been experimental but growing in the workplace over the past few years. Conceptually, the data gathered with these tools can grant insight into employee interactions with respect to safety. Development of new platforms to aggregate and analyze this data will be the key to its success going forward. The ability to measure and report on human interaction levels, distancing, and biometrics could be the salvation of large manufacturing facilities. The creation, refinement, and continued testing of these technologies could generate qualified R&D expenses earning your business greater eligibility for a tax credit.

Remote Work and Anywhere Operations

A counterpart to the return-to-work effort will be increased collaboration and productivity needs for those workers who will remain remote indefinitely. Whether you call it total experience, distributed workforce, or anywhere ops, it all focuses on how we can do more with less physical interaction. Cloud providers, SAS platforms, and information security developers are looking to deliver a seamless work experience for customers and employee alike in this evolving landscape of business. If you create and adapt technology to solve problems such as these, it will be a great opportunity to take a look at the R&D credit for 2021 and beyond.

Automation and Artificial Intelligence

Keeping with the theme, many businesses will find themselves operating on smaller budgets than prior years. Doing more with less isn’t a new concept, but for some in 2021, it may be task that was not voluntarily undertaken. By harnessing automation platforms in departments like finance, marketing, customer service, and many others, businesses are accomplishing their goals with reduced overall expenses and human error. There continues to be significant investments by organizations in modernizing legacy technology systems, driving process change and requiring a fresh look at these concepts. If you are seeking to develop, adopt, and improve upon these automation and AI technologies in 2021, keep an eye on your investments in this area as they may be qualified R&D activities.

Information technology development has long been a great opportunity to improve business function. In every stage, there is potential for qualified R&D activities. As we move into the unknown challenges of 2021, adaptation will be a certainty and innovation will be the guiding principle. Whether your business seeks to create these technology platforms for clients or adopt and use them to enhance operations, there is more than likely qualified R&D activity in the mix. Reach out to us to get started on your 2021 study today.

- Emerging Technology can Mean Big Tax Savings for Your Business - Tri-Merit
Pat is an Associate Director in the Grand Rapids, Michigan area and brings with him more than 20 years of experience in the Information Technology field. His career has included various IT analyst, project management, and leadership roles within the manufacturing industry.