Large and Small Business
Research and Development Tax Credits
Tax credit studies that are sustainable and seriously simple.
Understanding the complex IRS rules and regulations that accompany the Research & Development (R&D) tax credit is serious business, but the simple truth is if a company develops new or improved products or processes, it is likely to qualify for this incentive that was designed to keep technical jobs in the U.S.
Tri-Merit simplifies the process and helps companies determine the size of their potential credit, the usability of those credits, and the appropriate method for supporting their credit claims so they hold up even under the most stringent IRS scrutiny. All Tri-Merit clients can expect to receive the largest possible return and feel confident knowing their claim was developed for both their short-term and long-term success.
Take Advantage of Research and Development Tax Credits
Innovation is the core of a growing economy, which is why the government encourages businesses to invest in research and development. Aside from producing better products and services, innovation creates technical jobs and improves the country’s global competitiveness.
The downside, however, is that research and development is a risky endeavor. It’s costly to fund an R&D arm—a significant amount of resources can be spent on testing, developing, experimenting, paying for third-party research institutions, and compensating specialists. The government, therefore, awards research and development tax credits to companies with research initiatives. R&D tax credits incentivize research endeavors, which promote innovation and produce technical jobs in the country. In fact, you don’t need an R&D department to take advantage of these incentives.
Determining Businesses that Qualify for R&D Tax Credits
R&D tax credits aren’t limited to major corporations with research arms. In fact, it’s open to businesses of all sizes, as long as they conduct R&D tax-credit qualified activities – specifically research.
Research activities that qualify for R&D tax credits must be conducted in the U.S. Moreover, the organization must prove that the purpose of the activities is to solve technological uncertainty. The activities must rely on hard sciences (like engineering, biology, physics, computer science, etc.), support the development of a business component, and employ stringent testing and experimentation. These rules are contained in the IRS Four-Part Test for Qualifying Business Activity.
Businesses that conduct research initiatives related to internal-use software (IUS) could also apply, given that the software being developed will be used for conducting the trade or business. For instance, financial institutions — banks, insurance companies, hedge fund companies — develop specialized software for their operations.
Businesses that develop software should also satisfy three additional criteria:
- The software must result in reduced company costs while speeding up processes.
- Software development must involve a huge economic risk. It must expend a significant amount of resources and must be subject to the uncertainty of recovery.
- The software should not be commercially available. The business shouldn’t be able to buy, lease, or license the software for its intended purpose without having to make modifications that satisfy the first two criteria.
Companies can get research and development tax credit from qualified research expenses like:
- Wages for employees whose services involve qualified research activities
- Supplies for qualified research activities
- Research payments to educational and scientific research organizations
Benefits of R&D Tax Credits
By reducing the amount of tax that you or your client owes, R&D tax credits improve cash flow significantly. Take note that the R&D tax credit isn’t a tax deduction. It doesn’t decrease the taxable income of a company. Instead, it directly decreases a business’ tax liability; R&D tax credits give companies a dollar-for-dollar tax reduction.
When you claim research and development tax credits, you or your clients
If you want to learn more about how small business R&D tax credits can benefit your business, or what makes Tri-Merit stand out from other firms, get in touch with us today.
Common Misconceptions About the R&D Tax Credit
Our project failed. We won’t qualify.
Not true. Simply tally the qualified costs up to the point of termination and include those in your company’s R&D credit calculation
We don’t quality because we have no federal tax liability.
Smaller businesses and startup companies can apply their R&D credits against their payroll tax—not just their profits.
We’re not engineers, drug researchers or software developers so we’re not a good fit.
All types of companies in a variety of industries are now successfully utilizing R&D credits.
We don’t maintain supporting documentation of our R&D or track our employees’ daily R&D activities.
The IRS Four-Part Test for Qualifying Business Activity
1. Qualified Business Component.
2. Technological in Nature.
3. Eliminate the Uncertainty.
4. Process of Experimentation.
The right people, the right process, the right partner.
Not all tax credit studies are created equal, so it’s important you feel confident when choosing a specialty tax partner.
Tri-Merit’s highly experienced team of engineers, attorneys and CPAs make your life easier by taking a customizable, flexible and thoughtful approach to produce the best possible outcome. We engage clients in the most efficient and effective way possible, requiring minimal time and effort that results in a refreshingly simple process.
